More than in most years, 2020 is the year to ensure you make your pension contributions before the Chancellor delivers his speech. As explained earlier, the risk of a major pension tax reform, potentially reducing higher rate tax relief, is greater now than for some while.
One important point to check is whether you have any unused annual allowance from 2016/17, when the maximum annual allowance (before tapering) was £40,000. You have until the end of 2019/20 to use up this past allowance, or it is lost forever. However, it can only be utilised once your full annual allowance for the current tax year is exhausted. So, for example, if you are not affected by the taper rules and you have £10,000 annual allowance unused from 2016/17, to mop it up completely would require a total contribution of £50,000 in 2019/20 – £40,000 for the current tax year and £10,000 carried back three years.
Unused relief can also be used from later years, but once you have paid the current year ‘entrance fee’, the excess contribution is offset in chronological order, starting with 2016/17. Under current rules unused relief can be carried forward for three tax years (hence the 2016/17 deadline), but that principle – and the rate of tax relief – could change.
You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email email@example.com