UK pension holders and those with employer-contributed workplace pensions, as well as other private pension plans, have been notified of a smart tax-saving “backdate” strategy.
Maximize Your Pension Tax Savings with 'Backdate' Strategy
By relying on a technique that “backdates” your pension's annual allowance, you can take advantage of a perfectly legal tax loophole to reduce the amount of tax you pay in a given year.
Each year, an upper limit imposed on the contributions you can make to your workplace pension, called the pensions annual allowance. It is currently set at £60,000 and was raised by £20,000 last year.
Higher-rate taxpayers that exceed this rate could expect losing up to 40 or even 45% of the additional amount to HMRC.
Understanding How Carrying Forward Unused Allowances Can Benefit You
When completing your self assessment tax return, you can carry over unused allowances from the past three or even four years if you haven't done it before.
This can be advantageous if you've had a sudden increase in your earnings and have unused allowances from previous years, or you've received a one-off windfall such as an inheritance and want to contribute some of it to your pension.
By reviewing and utilizing these personal allowances, you could save thousands in pension taxes.
Gov.uk asserts: “An annual allowance limits the amount someone can pay into pension schemes each year before they must pay tax. It is £60,000 in 2024/25.
“A person cannot usually receive tax relief on pension contributions worth more than 100% of their annual earnings. However, people can still contribute £3,600 a year into a pension with tax relief even if they earn less than this.
“You’ll get a statement from your pension provider telling you if you go above the annual allowance in their scheme. If you’re in more than one pension scheme, ask each pension provider for statements.
“You might be able to carry over any annual allowance you did not use from the previous 3 tax years.”