As we near the 2022/23 tax year end on 5th April, it’s a good time to review your finances and consider any last-minute actions you can take to make the most of tax-efficient opportunities, such as making contributions to your pension or ISA before the deadline.
It’s also a good time to start planning for the new tax year, which begins on 6th April. This could include reviewing your budget, setting financial goals, and considering any tax planning opportunities for the year ahead.
Here are some tips to help boost your pension savings before the tax year end:
- Take advantage of the annual allowance: The annual allowance is the amount you can contribute to your pension each year before tax relief is limited. For the tax year 2022/23, the annual allowance is £40,000. If you haven’t used your full allowance from the previous three tax years, you may be able to carry forward this unused allowance and use it before the end of this tax year.
- Consider using your ISA allowance: If you have already maxed out your pension contributions or want to save even more, consider using your ISA allowance. For the tax year 2022/23, the ISA allowance is £20,000. You won’t receive tax relief on your contributions, but any income and gains generated by the investments held within the ISA will be tax-free.
- Use salary sacrifice: If your employer offers a salary sacrifice scheme, this can be a tax-efficient way to boost your pension savings. You agree to sacrifice a portion of your salary in exchange for your employer making a pension contribution on your behalf. This reduces your taxable income and therefore the amount of income tax and National Insurance contributions you pay.
- Check your eligibility for the pension contribution tax relief: If you’re a basic rate taxpayer, you’ll receive 20% tax relief on your pension contributions automatically. If you’re a higher rate or additional rate taxpayer, you’ll need to claim any additional tax relief through your self-assessment tax return. Make sure you don’t miss out on any tax relief you’re entitled to.
- Review your investment strategy: Before making any pension contributions, review your investment strategy to make sure it’s aligned with your retirement goals and risk appetite. You may want to consider seeking professional financial advice to help you make the most of your pension savings.
The 2023 Spring Budget on 15 March also delivered some important changes to pension tax limits, supporting the government’s efforts to encourage inactive individuals to return to work, in particular those aged 50 and above, and removing incentives to reduce hours or leave the labour market. Legislation will be introduced in Spring Finance Bill 2023 and will have effect from 6 April 2023. The changes to pension tax limits will:
- Increase the Annual Allowance from £40,000 to £60,000.
- Increase the Money Purchase Annual Allowance from £4,000 to £10,000.
- Increase the income level for the tapered Annual Allowance from £240,000 to £260,000.
- Ensure that nobody will face a Lifetime Allowance charge.
- Limit the maximum an individual can claim as a Pension Commencement Lump Sum to 25% of the current Lifetime Allowance (£268,275), except where previous protections apply.
- Change the taxation of the Lifetime Allowance excess lump sum, serious ill-health lump sum, defined benefits lump sum death benefit and uncrystallised funds lump sum death benefit, where they are currently subject to a 55% tax charge above the Lifetime Allowance, to taxation at an individual’s marginal rate.
The tax year end is an important date to keep in mind as it provides an opportunity to review your finances and take advantage of any tax planning opportunities that may be available. If you’re unsure about what actions you should take, it’s a good idea to speak to a professional who can provide tailored advice based on your individual circumstances.
For further information, contact your usual Beavis Morgan adviser who will provide tailored advice based on your individual circumstances. If necessary, we can also introduce you to an Independent Financial Adviser at our partner company Integrity 365 who will assess your situation and inform you of the pension protections best suited to you. You can also email firstname.lastname@example.org and an adviser will be in touch.