Carry forward pension contributions – and get 50% tax relief while you still can

• The annual limit (the maximum amount which you can pay into a pension and receive tax relief) is to equal to your earnings or £50,000 which ever is lower.
• Income tax relief on pension contributions will be at pension savers’ highest marginal rate. This includes 40% and 50% income tax payers.
• However, it is possible to offset contributions in excess of £50,000 against unused allowances from previous years under a three-year carry forward provision - subject to a number of rules. This means that it is feasable for someone to make a tax relievable pension contribution of up to £200,000 in a tax year, although individuals would still also be capped at 100% of net relevant earnings for receiving the tax relief.

Technically there's not a rush although rumours have circulated (as they do before every Budget or Autumn Statement) that the Chancellor may abolish higher rate income tax relief on personal pension contributions in his Autumn statement on 29th November.

Consequently, some financial advisers have been advising their clients who are higher rate taxpayers and who are thinking of making a pension contribution this tax year to consider doing so before 29 November.

Previous changes to higher rate tax relief on pension contributions has taken immediate affect when announced which meant that higher rate tax payers missed out of valuable tax relief. Having said this, tax should never be a sole reason to do anything and it's dangerous to act upon rumour. However, if you are a high rate tax payer and plan on making large scale pension contributions this tax year then you might decide to bring the outlay forward to be on the safe side.But I must stress that there is no hard evidence that the Chancellor, George Osborne, will abolish higher rate income tax relief on pension contributions on 29th November.

Speak to a financial adviser before doing anything.

 

(update 30th Novemeber: there were no announced changes to pension legislation in the Autumn Statement. So you can still take full advantage of this money tip but without the rush)