Should You Pay Into a Pension Before Tax Year End?

The end of the tax year is approaching, that means it’s an ideal time to review your retirement savings and potentially reduce your tax bill by paying into a pension.

It won’t take long to read this, but it could help you keep significantly more of what you earn. The government is concerned that people aren’t saving enough for their future, so they offer tax relief for those who plan ahead.

Private Savers: Why Increase Your Pension Contributions Now?

The government is keen on encouraging saving for retirement and offers attractive tax incentives for early planners. Here’s how it works:

• For Basic Rate Taxpayers: Contribute £1,000 into your pension – the government sweetens the pot with an additional £250. We handle the 25% bonus claim for you, ensuring you reap all the benefits without the hassle.
• For Higher Rate Taxpayers: Enjoy the same government bonus, plus the opportunity to claim an extra 25% back when you file your tax return.

Tax relief on pension contributions is one of the main advantages of pensions when it comes to saving for the future. Discover more about these perks and how they can work in your favor in our Pension tax relief explained guide.

Self-Employed? Here’s How You Benefit:

For the self-employed, pension contributions offer a tax-efficient saving route. Annually, you can contribute up to £60,000, or 100% of your total annual income, whichever is lower, to enjoy a 25% tax bonus on these contributions. This applies across all of your pensions, not each pot separately.

However, exceeding your annual pension allowance could trigger an ‘annual allowance charge.’ This is essentially a tax charge owed on any amount over the contribution limit.

Learn more about these contribution limits in our How much can self employed pay into a pension? guide.

Limited Company Directors: Save on Corporation Tax

Limited company directors have a unique advantage. By making pension contributions, you can significantly lower your corporation tax bill. Here’s why:

• Contributions are considered business expenses, reducing your taxable profit.
• Profits up to £50,000 are taxed at 19%, with a tapering amount leading to 25% on any profits above £250,000.
• Lowering your profit through pension contributions directly cuts your corporation tax rate.
• Therefore limited company directors can save between 19 and 25% by contributing some of your profits into a pension.

Discover more in our How much can a company contribute to a director’s pension? guide.

Why Act Before the Tax Year Ends?

• For Private Savers: Secure a government bonus of 25% on your contributions that we arrange for you.
• For Higher Rate Taxpayers: Claim even more back in your tax return - but you need to make that payment before the end of the tax year!
• For Limited Company Owners: Use pension contributions to reduce your profit, and therefore, your corporation tax. Many companies’ financial years end on March 31st, making now the optimal time to contribute.

Take Control of Your Financial Future

The approach of the tax year end is an excellent time to make strategic decisions impacting both your current financial health and your future financial well-being.

Contributing to your pension isn’t just a wise move for your future self; it’s a savvy strategy for your present financial health. By understanding and utilising the benefits of pension tax relief, you’re taking an important step towards a more secure retirement.

Review your pension contributions today for a chance at significant savings and the peace of mind that comes with knowing you’re proactively preparing for life after work. Your future self will thank you!