Three top tips, from Kevin Garfagnini, Mazars Scotland
1. Free cash
Payments into a pension are one of the few investments that provide you with tax relief. The relief is based on your marginal rate of income tax. So if you are a basic rate taxpayer, you receive 20 per cent tax relief, higher rate taxpayers get 40 per cent and additional rate taxpayers 45 per cent.
Non taxpayers also receive 20 per cent tax relief on contributions up to £3,600 a year, allowing one earning spouse to save in pension for the other. Effectively, this is free money from the government – make the most of it!
2. Sweep up unused pension allowances
The clock is ticking. The maximum you can pay into a pension in any one year is £50,000 so any year where you paid less than this can be carried forward to the current 2013-14 tax year.
This means you can use your unused pension annual allowance from as far back as 2010-11 but these must be used this tax year – or they are lost forever. For a 40 per cent taxpayer, this could mean a missed opportunity to save up to £50,000 at a net cost of only £30,000
3. Use your bonus
Many businesses pay their staff bonuses at this time of year. Such bonuses, whilst very welcome, may leave you with a significant income tax charge. Using your bonus to make a pension contribution via salary sacrifice has a number of benefits. Employer and employee national insurance saved via the salary sacrifice could be added to the pension contribution, therefore gaining tax relief on a tax saving. An additional potential benefit is that sacrificing salary in this way also reduces your taxable income potentially allowing you to recover your lost personal allowance or avoid the child benefit income tax charge.