As the tax year draws to a close and the impact of the recent Budget is kicking in, it’s an opportune time to review your pension contributions and take full advantage of the available tax benefits.
Despite upcoming changes such as the introduction of inheritance tax (IHT) on pension death benefits, pensions remain a highly efficient tool for retirement savings and wealth transfer. The numbers speak for themselves.
With tax relief available at the highest marginal rate, making the most of pension contributions is crucial.
Pensions remain one of the most tax-efficient ways to save for retirement, thanks to tax-free cash allowances and significant tax relief during one’s working years. Proper tax planning should be an ongoing process, but year-end decisions are critical. In most cases, unused allowances cannot be carried forward beyond the tax year, making timely action essential to maximise benefits.
Maximize the Annual Allowance
The annual allowance remains at £60,000 for this tax year, an increase from the £40,000 cap in 2022/23. This expanded allowance enables higher earners to reduce their tax liability by making additional contributions. Since the personal allowance and tax bands have been frozen until 2028, more individuals will find themselves moving into higher tax brackets. Pension contributions can help extend lower tax bands and reduce liabilities on investment bond gains.
In Scotland, planned tax band increases in 2025/26 mean that contributions made in 2024/25 may provide even greater tax relief for Scottish taxpayers.
Carry Forward Unused Allowances
If you haven’t maximized pension contributions in previous years, you can carry forward unused allowances from the last three tax years. This means that eligible individuals could contribute up to £200,000 in the current year, provided they have sufficient relevant UK earnings.
Speak to our team to get tailored guidance on your own position.