How much can I pay into my pension after the Summer Budget?
The summer Budget on 8 July introduced new rules on how much can be paid into your pension for the remainder of the tax year.
The rules impact everyone, even though they were introduced in connection with the new limits on tax relief for those earning over £150,000, which are set to come into effect on 6 April 2016.
In summary, the Government has changed the way your pension input period works in order to align it with the tax year by 2016. Before the summer Budget, it was possible to make pension contributions in one tax year and have them counted against the following tax year’s contribution limit.
This means everyone could potentially pay up to £80,000 in the current tax year, but only up to £40,000 from 9 July 2015 to 5 April 2016. So, if you contributed £40,000 before 8 July, you can pay a further £40,000 before 5 April 2016. If you made no contributions before the Budget, you may contribute up to £40,000 before the end of the tax year.
If you are paying regular monthly contributions and wish to top up your contributions to the maximum allowed, you can pay up to £40,000 (less the total of your gross monthly contributions already made) between 9 July 2015 and 5 April 2016.
Carry forward of unused contributions remains available. This means someone with a pension arrangement in place, but who has made no contribution since before the 2012/13 tax year, could pay £40,000 for the current year and then sweep up a further £140,000 from previous years – as long as their total earnings are at least £180,000. Tax relief is available at marginal rates.
Care should be taken when calculating the maximum contribution that you can make, and anyone wanting to increase their pension contributions, or make new ones, should seek financial advice.
What should I do next?
Assess your pension contributions now. There are a number of good reasons to do so:
- If you earn over £150,000 your annual allowance will be lower, starting from the next tax year
- If you expect to earn over £150,000 in the coming years, it is sensible to fund pensions while you still enjoy the full annual allowance
- The Lifetime Allowance (LTA) falls to £1 million from April 2016, so if you want to keep the current, higher LTA of £1.25 million, then you will not be able to make further contributions after 5 April 2016
You can read our detailed commentary on the summer Budget here. If you would like to discuss it, or your investments, in more detail please call us on 020 7189 2400, request a call back or email us at email@example.com
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. The above article is based on our interpretation of the Budget 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.