With the end of the 2021/22 tax year fast approaching, now is the time to ensure you are making the most of your pension annual allowance.
The current standard annual allowance is £40k. This means you could potentially get tax relief on gross contributions up to this amount. You are also able to carry forward any unused allowances from the previous three tax years.
There are certain situations when you can’t make gross pension contributions up to £40k.
The first situation is where your annual earnings are less than £40k. For example, if you have a salary of £25k and no other income, you could only make gross contributions of up to £25k for the year. The unused allowance of £15k would be available to be carried forward.
The second situation is where your ‘threshold’ income exceeds £200k and your ‘adjusted’ income exceeds £240k. In this instance the annual allowance is abated by £1 for every £2 the adjusted income exceeds £240k. The annual allowance can be abated to the minimum allowance of £10k.
If pension contributions exceed the maximum contributions allowed, an annual allowance charge will be due on the excess contributions.
If you would like us to calculate the maximum contributions you can make for 2021/22, please get in touch with Keely Hughes and she will be happy to look at this for you.