Most people can pay up to £60,000 into a pension each tax. This so-called annual allowance includes employer contributions. You may have a lower allowance if your annual income is over £200,000.
Conversely, you can contribute more than £60,000 if you have unused annual allowances from the prior three tax years (‘carry forward’). This means a maximum allowance of £200,000 may be available in the 2024/25 tax year. Any allowance is limited to your earnings, excluding dividends and rental income.
Once you have established your maximum allowance, you could consider how to top up your pension, if you have the means to do so. Typically, the main options are either through a workplace pension scheme, or a self-invested personal pension (SIPP). Differences include investment choices, ease of use, costs, and tax relief mechanisms.
For instance, if you top up a SIPP by £16,000, the government adds £4,000 basic tax relief directly to your SIPP account. If you are lucky enough to have a total allowance of £200,000, you could make a personal contribution of £160,000 into a SIPP. Higher rate and additional rate tax payers need to claim the full income tax relief via Self-Assessment.
Making pension contributions into a SIPP via the company can be particularly beneficial for small business owners. Employer contributions count as an allowable business expense, thereby lowering corporation tax, while also giving your pension – which is a key retirement asset – a large boost.
Want to find out more about your pension contribution options? Call 03300 564 446 to speak to one of our experts, or get in touch via our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
