My client is thinking about making a pension contribution before the end of the tax year. What are the current limits that he needs to be aware of?

Reviewing a client’s pension position is always a good idea before the end of a tax year.  As we are approaching the end of the 2015/16 tax year now is a very good time for giving this some thought.  Making contributions can preserve personal allowances for anyone whose income is above £100,000. Pension contributions can be made tax free up to certain limits.  These limits are as follows:

  1. 100% of the earnings for the tax year.  You cannot claim relief for more than total relevant earnings for the year
  2. Up to the £40,000 annual allowance; and
  3. £1.25 million during the individuals lifetime i.e. the lifetime allowance.

Contributions that exceed the above limits will be subject to tax. The annual allowance or any part of the annualallowance that is unused from the previous three tax years may be added to the annual allowance of the current year.  If no contributions have been made in the three previous years it may be possible to make a contribution equivalent to four years’ annual allowance provided there are sufficient earnings to cover the contribution.  The annual allowance for 2011/12 and 2012/13 was £50,000 and for 2013/14 was £40,000.

Given that Budget Day is set at 16 March 2016, which may include immediate changes to tax relief on pension contributions, it is advisable to consider making use of the above allowances before that date.

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