Pension input periods
Pension input periods now align with the tax year
When you make a pension contribution you are given tax relief based on the annual allowance and your earnings for the year in which the contribution is made. HMRC uses your pension input period (PIP) to calculate your pension contributions and tax relief, and up until recently you could choose how long each PIP ran for and when it ended. However, all pension input periods now run in line with the tax year, making them effectively pointless.
Summer Budget 2015 and pension input periods
In the Summer Budget George Osborne announced that pension input periods would run in line with the tax year from the beginning of 2016/17. Pension contributions will be calculated from 6 April to 5 April with no option to change the date or duration. However, the transitional rules mean you could contribute more than £40,000 this tax year.
Pension contributions in 2015/16
As part of the change, all current pension input periods were reset on 9 July 2015 - the day after the Summer Budget. Your new pension input period will last until 5 April 2016, after which it will run in line with the tax year. This is to protect anything you contributed before the Budget from retrospective tax penalties.
You could make pension contributions of up to £80,000 in the 2015/16 tax year and still get tax relief.
This means you can contribute up to £40,000 between now and the end of the tax year - on top of anything you paid in between the beginning of the 2015/16 tax year and the Summer Budget. You could therefore make pension contributions of £80,000 this tax year if you paid in your full £40,000 allowance before 9 July 2015.
SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right for you. Self-directed investors should regularly review their SIPP portfolio, or seek professional advice, to ensure that the underlying investments remain in line with their pension objectives. Prevailing tax rates and the availability of tax reliefs are dependent on your individual circumstances and are subject to change. Please note the term Best is a brand name of the Bestinvest SIPP.
The above article is based on our interpretation of the Summer Budget of July 2015 and related legislation; it is not intended as advice, and the impact of any changes to tax rates or allowances will depend on your personal circumstances.