Pension tax benefits: Britons could use pension to ‘drop a tax band’ | Personal Finance | Finance
Contributing to a pension can bring a variety of benefits, including the possibility of reducing a tax bill. Adrian Lowery, personal finance expert at Bestinvest explained how Britons can make the most of their tax allowances.
It was once significantly higher at £1,800,000 in the 2011/12 tax year, but has reduced over time.
People who breach the lifetime allowance could be hit with a tax charge of up to 55 percent.
Pensions are generally tested when people draw from them, reach age 75, or on death.
Breaches of the annual or lifetime allowance must be reported on a self-assessment tax return.
Salary sacrifice
There are various schemes which companies run allowing employees to surrender some of their gross income and receive a benefit or a product instead.
Salary sacrifices work like annual allowances to reduce taxable income and they can be offered by some firms as a method of contributing to a pension scheme.
Mr Lowery explained the potential benefits of utilising salary sacrifice.
He said: “In this case, salary sacrifice provides savers with National Insurance relief on top of the usual pension tax relief, making the boost to your pot greater – and can even sometimes mean you drop a tax band if your salary is just over a threshold.”
