The pension annual allowance is a limit to the total amount of contributions that you can pay into a pension scheme in one tax year while benefitting from tax relief.
The current annual allowance for the 2022/23 tax year is £40,000 per year. The annual allowance includes your personal contributions, employer contributions and tax relief. It doesn’t include the State Pension.
If your taxable earnings are under the annual allowance then you can only contribute up to 100% of your earnings in that tax year.
What happens if I go over the pension annual allowance?
If you go over the annual allowance then you will be subject to a tax charge, called the annual allowance charge.
What is the carry-forward allowance?
You may be able to carry forward any unused pension allowances from the previous three tax years. This may mean that if you go over the limit in one tax year you will not be subject to the annual allowance charge.
The carry forward allowance can be complicated, a financial adviser at Four Wealth Management can help you to calculate how much you have remaining and if you need to declare anything to HMRC.
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What happens if I go over the pension annual allowance?
If you go over your annual pension allowance then you should include the excess amount on your self-assessment tax return. You will not receive tax relief on the amount over your allowance.
Can I still contribute to my pension after taking income from my pension?
If you have started to take any income from your pension then your pension annual allowance will reduce to £4,000 per year for any future savings. Anything over £4,000 will not benefit from tax relief.
What is the Pension Lifetime Allowance?
It is also worth noting that there is also a limit on the total amount of benefits that can build up in a pension in your lifetime for tax relief purposes. In the 2022/23 tax year this limit is £1,073,100. This has been frozen at this level until the 2025/26 tax year.
This allowance applies to all of the pensions you have including any defined benefit schemes and any personal pensions. The State Pension is excluded from this total.
Can I contribute to a pension if I am not working?
If you are unemployed you can contribute up to £2,880 to a pension each tax year. This amount receives tax relief of 20% which tops up your contribution to £3,600 in total.
This amount can also be contributed to a child’s pension.
Make the most of your pensions
Pension rules and allowances are complex and the rules change frequently. A financial adviser at Four Wealth Management can help you to understand which tax reliefs and allowances apply to your personal circumstances so you can make the most from your pension.
Book a no-obligation meeting now or call us on 0117 973 0500
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
