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Tax Relief on Pensions Explained#AskAMS

There are a few issues that we regularly see around the subject of tax on pensions:

Employees earning over £50,000 (the Higher Rate Tax threshold for 2019/20), sometimes think they will automatically obtain tax relief on their contributions when they pay into a pension scheme. But, to get higher rate tax relief (an extra 20%) you need to contact HMRC/complete a Self-Assessment Tax Return to claim the relief - otherwise you will be paying more tax than you should be.

Do you actually know how much you contribute into pensions?

If you are in a large organisation you may have a pension scheme that you take for granted. If this is you, do you know whether you and/or your employer make contributions? You should check this out and contact HMRC to avoid missing out on your tax relief.

Deferring state pension to receive a higher future pension or a lump sum

When you reach state pension age, if you don’t claim your pension, it will be automatically deferred. If you defer your state pension, you get a higher state pension when you start to claim it. If, however, you started deferring your state pension prior to April 2016, you would have had the option of receiving a lump sum rather than increased ongoing payments. In such circumstances, your lump sum will be taxed at the ‘marginal rate’ for that tax year (whether 0% if you don’t earn enough to pay tax; 20% for income up to the higher rate tax threshold (£50,000 in 2019/20) or 40% on income above that). This lump sum option is no longer available for people reaching state pension age later than April 2016.

AMS Accountancy Swindon and Wiltshire

AMS Accountancy Ltd

AMS Accountants in Swindon provide a complete accountancy service for small businesses in Wiltshire and a monthly accountancy service for contractors throughout the UK.

Delta 606, Welton Road, Swindon, SN5 7XF

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