While the government has hit the highest earners in the pocket, for those who fall into this bracket it might interest you to hear that there is a tried and tested way to gain some tax relief – through pension contributions.
Are you finding that more and more of your income is taxed at over the basic rate? If so, you are not alone. The point at which you start to pay 40 per cent income tax has been slashed compared to five years ago. It currently stands at £42,385, compared to the 2010/11 figure of £43,875.
The impact of the tax on child benefit is also cutting deep for anyone earning more than £50,000. Plus, some high earners may be subject to the withdrawal of the personal allowance on income over £100,000. These increased tax burdens for higher earners are a deliberate policy, as last year’s Autumn Statement made clear.
“As a result of the government’s reforms to tax, welfare and public spending across this parliament, the richest households will make the biggest contribution to reducing the deficit, both in cash terms, and as a proportion of their income,” it read.
Tax relief from pension contributions
The message is clear: the solution to reducing the amount of tax you pay is in your own hands. The bottom line is that planning ahead could help you to lessen your rising tax burden, and a key tax planning opportunity worth considering lies in pension contributions.
Pension contributions qualify for tax relief at your highest rate. This may be 40 or 45 per cent but the effective rate of relief could well be even higher (up to 60% or higher) if your pension contributions help to mitigate against the withdrawal of child benefit or your personal allowance.
Acumen’s account on matters
“The generous tax reliefs successive governments have given to pension arrangements mean that they have long played an important role in tax planning for high earners,” says Angela Maher, Acumen’s Managing Director.
However, in the last six years, increasingly tight restrictions have been placed on these reliefs, just as the rising burden of income tax has made them all the more valuable. The amounts you can pay in and take out, without suffering heavy tax charges, have been reduced significantly but pensions continue to offer significant tax benefits,” Angela adds “It is particularly important for anyone earning over £110,000 a year to get professional advice as soon as possible as there is a new piece of tax legislation that will affect pension tax relief that needs to be properly understood
Look out for a future blog from us that will give you an in-depth understanding of exactly how pensions contributions can lessen your tax burden without falling into any of taxman’s traps.
To discuss your financial matters with one of our dedicated team please contact us today on 0151 520 4353 or email firstname.lastname@example.org.