Political debate continues with regard to the 50% income tax rate payable on taxable income in excess of £150,000 in terms of how long it may stay in place.
While there is uncertainty from a political perspective as to the’ will it won’t it stay’ position, one thing is certain. While it is available, top earners should consider making the most of this opportunity now in order to benefit from up to £25,000 extra pension tax relief. This is based on a top earner fully contributing in the current tax year, utilising unused allowances from the previous three years, and then fully contributing next years annual allowance by leveraging pension input periods. The diagram below shows how this can work in practice and the attached document provides a five step process for maximising pension funding.
Adrian Walker, Skandia’s pension expert, comments:
“Clever use of pension input periods, and utilisation of unused allowances from the previous three tax years, are both ways in which customers are able to maximise their pension contributions. With all the speculation around whether the 50% tax rate will stay or go, customers subject tp this level of income tax who are fortunate enough to be able to put more money into their pension should consider doing so now. If the tax rate does fall back to 40%, then customers would have missed out on up to £25,000 of additional tax relief.”
* the maximum available now for each tax year will need to take into account the value of benefits already built up in each tax year and assumes that the client was a member of a registered pension scheme in all of the tax years in question.