Financial Year End April 2011 Tips
- Pension -
3 Tips for those earning UNDER £130,000
1. Until this tax year end individuals with income below £130,000 can make pension payments equivalent to 100% of their income.
Their employer could also top up payments to a maximum of £255,000
So if you earn £100,000 (say) with tax relief you will only need to contribute £60,000 net. The remaining 40% (£40,000!) will be income tax relief
Your employer could contribute a further £150,000 (say) and have that amount as an allowable business expense.
- Pension -
3 Tips for those earning UNDER £130,000
1. Until this tax year end individuals with income below £130,000 can make pension payments equivalent to 100% of their income.
Their employer could also top up payments to a maximum of £255,000
So if you earn £100,000 (say) with tax relief you will only need to contribute £60,000 net. The remaining 40% (£40,000!) will be income tax relief
Your employer could contribute a further £150,000 (say) and have that amount as an allowable business expense.
What a deal!
2. Individuals over age 55 who are able to take pension benefits before 6 April 2011 are exempt from the annual allowance (see jargon buster below)
3. From 6 April the option to disregard the annual allowance (see jargon buster below) in the year benefits are taken will no longer be avilable
Remember, contribution payments are measured against the annual allowance are those made during the input period (see jargon buster below) ending in the tax year - not those made during the tax year overall.
Jargon Buster
Annual allowance
An annual allowance for pension savings applies each year, which is based on an input period (see below). This limits the amount of tax privileges available on pension savings each year.
Members are subject to a 40% tax charge on the amount of any contribution (both member, contributions on behalf of the member and employer) paid in excess of the annual allowance each year.
In Tax Year 2006/07 the Annual Allowance was £215,000
In 2010/11 as mentioned in the text above it is £255,000
The annual allowance applies in total to all pension benefits a member may have.
Input Period
Since 6th April 2006, members of a pension have been able to set a Pension Input Period to make contributions. A Pension Input Period is a period (usually, but not always, a year) in which a contribution can be made. The original idea was to make things easier for companies that had year ends that were different to the tax year end i.e. company year end of 31st December.
- PIPs are fiendishly complex but can be used to great effect for higher earners to make sizeable contributions - more in a later blog or contact us for more details or examples
E&OE - Please remember this is just a blog with a few tips - Please don't take this as personal or specific financial advice. Pension legislation is huge, varied, complex and subject to almost constant change. What is right for you will be wrong for someone else - what you should do will depend greatly on your specific circumstances - PLEASE take professional advice in this area before acting unless you are really confident you know what you are doing.
2. Individuals over age 55 who are able to take pension benefits before 6 April 2011 are exempt from the annual allowance (see jargon buster below)
3. From 6 April the option to disregard the annual allowance (see jargon buster below) in the year benefits are taken will no longer be avilable
Remember, contribution payments are measured against the annual allowance are those made during the input period (see jargon buster below) ending in the tax year - not those made during the tax year overall.
Jargon Buster
Annual allowance
An annual allowance for pension savings applies each year, which is based on an input period (see below). This limits the amount of tax privileges available on pension savings each year.
Members are subject to a 40% tax charge on the amount of any contribution (both member, contributions on behalf of the member and employer) paid in excess of the annual allowance each year.
In Tax Year 2006/07 the Annual Allowance was £215,000
In 2010/11 as mentioned in the text above it is £255,000
The annual allowance applies in total to all pension benefits a member may have.
Input Period
Since 6th April 2006, members of a pension have been able to set a Pension Input Period to make contributions. A Pension Input Period is a period (usually, but not always, a year) in which a contribution can be made. The original idea was to make things easier for companies that had year ends that were different to the tax year end i.e. company year end of 31st December.
- PIPs are fiendishly complex but can be used to great effect for higher earners to make sizeable contributions - more in a later blog or contact us for more details or examples
E&OE - Please remember this is just a blog with a few tips - Please don't take this as personal or specific financial advice. Pension legislation is huge, varied, complex and subject to almost constant change. What is right for you will be wrong for someone else - what you should do will depend greatly on your specific circumstances - PLEASE take professional advice in this area before acting unless you are really confident you know what you are doing.
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