Page 24 - Index
P. 24

If contributions are paid in excess of the annual allowance, a charge – the annual allowance charge – is payable. The effect of the annual allowance charge is to claw back all tax relief on premiums in excess of the maximum. Where the charge exceeds £2,000, arrangements can be made for the charge to be paid by the pension trustees and recovered by adjustment to policy benefits.
Tax relief on personal pensions
Premiums on personal pension policies are payable net of basic rate tax relief at source, with any appropriate higher or additional rate relief usually being claimed via the PAYE code or self assessment tax return.
 Case Study
  Kevin has not made any contribution into his pension policy so far in 2022/23.
Kevin has unused annual allowances of £30,000 from 2019/20, £5,000 from 2020/21 and £20,000 from 2021/22 (total £55,000). Kevin’s income is less than £200,000.
Kevin’s maximum pension investment is therefore set at £95,000 (£40,000 plus £55,000) for his 2022/23 PIP. He needs to make a pension contribution of £70,000 (current year allowance £40,000 and £30,000 unused relief from 2019/20) in order to avoid the loss of the relief brought forward from 2019/20.
  Case Study
  Linda will earn £60,000 in 2022/23. She will invest £12,500 into her personal pension policy. She is entitled to the basic personal allowance and has no other income.
Linda will pay her pension provider a premium, net of basic rate tax relief of £10,000. She is also entitled to higher rate tax relief on the gross premium, amounting to £2,500.
As Linda is an employee, we can ask HMRC to give the relief through her PAYE code. Otherwise, we would claim in Linda’s 2023 Tax Return. Thus the net cost to Linda of a £12,500 contribution to her pension policy is just £7,500.
 Scotland has income tax rates which are different from those that apply in the rest of the UK. Pension payments by Scottish taxpayers paying at the starter rate of 19% will be treated in the same way as 20% taxpayers in the rest of the UK. Scottish taxpayers who pay tax at 21%, 41% or 46% claim the difference between these rates and the basic rate of 20%. Contact us for specific advice.
    Retirement Planning
Page 23





















































































   22   23   24   25   26