It seems like every day that passes, the Government makes saving tax more complicated and less attractive. Pensions might seem like an old-fashioned way to save money, but in today’s world they’re still one of the more effective ones.
Any contributions you make into your pension will be given full tax relief, reducing the amount of tax you pay in a year by the value of the contribution. So, no matter what your situation, whether you can only put in £1,000 a year or can hit the cap at £40,000, regularly putting money into your pension is a great way to significantly reduce your tax bill.
However, there are two major caveats to be aware. Firstly, any money you put into a pension is locked away until you’re 55. Secondly, you have to plan when you contribute – relief for pensions is given in the tax year the contribution is made, not the calendar year.
Planning your pension can be complicated, so for many people a good option is to invest in specialised pension advice. For business owners, the company could pay for this – but would that result in an unwelcome benefit in kind and you paying extra? Normally, it would – however, there is a special rule which allows the first £500 of one-to-one pension advice for employees to be claimed as a tax-free benefit. This was previously limited to £150 but was increased to £500 from 16/17.
While we cannot recommend how you invest your money, if you are interested in saving on your tax bill through pension contributions, just contact your local AIMS accountant!