It’s important to plan for the future, but, pension savers need to be aware of the tax implications when it comes to pension payments.
Individuals making pension contributions receive an annual allowance of £40,000 for the 2018 – 2019, with tax relief on earnings available if annual pension payments fall below this. Exceeding the limit will activate an annual allowance charge, reducing tax relief on savings over the annual allowance and calculated by the amount of taxable income and the excess payments made. Employers making contributions to annual pensions may trigger the charge if they exceed the annual allowance, and with the recent legislative increases for auto-enrolment pension contributions by employers from 1% to 3%, this could easily occur.
High-earners, with an annual ‘adjusted income’ (including pension contributions) over £150,000 and a ‘threshold income’ (excluding pension contributions) of £110,000, may be subjected to a tapered annual allowance. Reducing annual allowance by £1 for every £2 earned over £150,000, the maximum reduction will be £30,000, so any income over £210,000 will have an annual allowance capped at £10,000.
If the pension excess is under £2,000 the charge is added to taxable income. If the excess is over £2,000, pension providers can be instructed to pay HMRC with funds from the pension itself. Pension providers must be notified before 31 July, if they are to pay the tax charge for the previous tax year.
If you have questions in relation to your pension contributions and the annual allowance charge, or for advice on paying the charge if you exceed your annual allowance, contact LWA via their website or call 01925 830 830.
LWA is an award winning firm of accountants providing a value-added accountancy and business advisory service for over 20 years and have offices in Sale, Manchester and Birchwood, Warrington. www.lwaltd.com