By George Uglow, financial planner at Irwin Mitchell
The Treasury has recently scrapped plans for an Autumn Budget, but that does not mean there won’t be an emergency budget. The pandemic is evidence that circumstances can change very quickly so it is even more important to make the most of the opportunities available to you.
I think we are all expecting some form of change to the tax regime and what this will look like remains to be seen, but with a lot of retirement plans shifting, utilising pension tax relief is a real opportunity that should not be missed.
Tax relief is given by the government on contributions that are made into a personal pension plan. As an example, if a basic rate taxpayer were to contribute £8,000 into their pension arrangement the government would add a further £2,000 of relief to make the total contribution £10,000. Higher and additional tax payers can claim a further 20% and 25% relief via their tax return. As it stands an individual making personal pension contributions can obtain tax relief on 100% of their relevant UK earnings, or the annual allowance of £40,000, whichever is lower. The annual allowance is the maximum tax relievable pension contribution that can be made in the tax year.
In addition to this, individuals are able to utilise ‘carry forward’ which allows you to make pension contributions in excess of the annual allowance, carrying forward any unused allowance from the previous three tax years. To do this you must maximise your tax relievable pension contributions in the current tax year (£40,000 for 2020/21), you can then look to utilise any unused allowance from the previous three years, starting with the oldest year first.
The effect of utilising pension tax relief can significantly boost retirement savings, so while it's available this should be maximised. It may seem complex, but a financial planner would be best placed to discuss your retirement plans, review your pension contributions and ensure you are making the most of your funds and the reliefs available to you.
The Chancellor has vowed to “balance the books” which surely indicates that tax changes are soon to be upon us. Therefore I would urge individuals to act now and discuss their financial future with a financial planner.
In an online speech during the Conservatives' annual party conference, he said: "I won't stop trying to find ways to support people and businesses."