Could you take advantage of 'hidden tax relief' on pension contributions?
If you have a taxable income in excess
of £100,000 you may be aware that
you can receive tax relief of 40% on
your pension contributions.
However, did you know it could be possible to receive up to 60%?
How to achieve 60% tax relief
Your personal allowance is reduced by £1 for every £2 of taxable income above £100,000. Your personal allowance is how much you can earn before any income tax is due. The personal allowance is currently £7,475, if you are under 65. This means if you have income in excess of £114,950 you will have completely eroded your personal allowance. Many people may be unaware that they can reduce their income by making a pension contribution and therefore helping them reclaim valuable personal allowance.
If an individual who has a taxable income between £100,000 and £114,950 makes a contribution that takes their earnings below £100,000 they could reclaim their full personal allowance as well as getting 40% tax relief on their contribution resulting in tax relief of up to 60% for individuals earning between £100,000 and £114,950. If an individual earns above £114,950 they can still claim some their personal allowance back if their taxable income, after the contribution has dropped below £114,950.
With higher rate tax relief under review, the opportunity to achieve tax relief of up to 60% on pension contributions may be short lived. Before making a pension contribution you should seek professional financial advice.