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Making the most of the pension tax relief clampdown

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 We are grateful to Murdoch Asset Management and Tony Dunne (pictured) for their permission to re-produce this article.


From 6th April 2014 the maximum annual contribution to a pension reduces from £50,000 to £40,000, although you will still be able to carry forward unused relief from the last three years, subject to your relevant earnings. In the 2013/14 tax year the maximum potential contribution under these ruleswould be £200,000, reducing to £190,000 in 2014/15.

If you are a higher rate tax-payer with a large enough salary, a personal contribution to your pension of £30,000 could only cost you £18,000. You would need to pay £24,000 up front, the pension provider would claim basic rate tax directly from HMRC and you can reclaim the additional £6,000 relief via your tax return.

Whilst pensions are quite restrictive when you come to draw from them, they are still highly advantageous where saving tax is concerned.

Salary Sacrifice

Better still, if your employer is progressive, ask them to consider a ‘salary sacrifice’ employer’s contribution, which will also save both the employer’s and the employee’s national insurance, meaning a potential tax saving of 56% for those with £30,000 higher rate income to use. The net personal cost of a gross contribution of £30,000 is illustrated left.

Lifetime Allowance

Total pension funds are capped at £1.5m now, but this reduces to £1.25m in the next tax year. On vesting your pension, a punitive tax charge of up to 55% will be applied to the excess over this amount. If you have not taken the previous protections (primary & enhanced) there is action you can take now to minimise this charge.

If your pension fund is likely to exceed £1.25m in your lifetime and you will not be paying any more contributions, fixed protection is available and it sets the allowance at £1.5 million. You must register for this by 5th April 2014. Individual protection is available for those with a pension fund that is already above

£1.25 million on 5th April 2014 and entitles the saver to a lifetime allowance of the greater of their pension fund on 5th April 2014 (up to an overall maximum of £1.5 million) or the standard lifetime allowance. Unlike fi xed protection, individual protection is not subject to restrictions on future contributions.

Please do not hesitate to contact Tony Dunne at Murdoch Asset Management. Visit