Month: December 2024

1. Upcoming changes: New Labour government has proposed that from April 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes. This removes an exemption that could have saved IHT of up to 40% of the value of the pension fund.¹
   
   
2. The maximum amount of contributions (subject to Pension annual allowance below) on which a member can have tax relief in any tax year is potentially greater of:
   – the ‘basic amount’ – currently £3,600 (gross), or
   – the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year.
   
   Example : Individual’s annual salary is £12,000. Maximum net can put in his pension is £12000 x 0.80 = £9,600 because with HMRC relief of 20% of £2,400 (£12,000-£9,600) gross becomes £12,000.
   
   Pension income– either from a defined benefit, defined contribution or the State Pension – isn’t classed as relevant UK earnings.²

For a detailed list of what is classed as relevant earnings see PTM044100.

Employer contributions are not restricted by the net relevant earnings. ³ But again restricted by Pension annual allowance below.

3. Pension annual allowance: Maximum amount a tax payer can deposit in pension in a year is £60k⁴. This amount includes Employee contribution, Employer contribution and HMRC Relief⁵.

Carry forward: This allowance can be increased by any unused annual allowance of the previous three tax years⁶, this is only available in case taxpayer has been a member of a registered pension scheme in previous tax years.

Taper: If annual income of the tax payer goes over £200k, they should calculate Tapered Annual allowance. Use our excel tool to calculate it.

Flexi access: If taxpayer withdraws funds under ‘flexible drawdown arrangements’ from his pension annual allowance is restricted to `money purchase annual allowance` (MPAA) currently £10,000. ⁷ Once tax payer accesses pension flexibly MPAA calculation will need to be done for that and every subsequent tax year.¹⁰ For example calculation see PTM056540 or Tolley Tax computations 19.3 D. Also note carry forward allowance are not added to MPAA.¹¹

4. Age: Contributions are not permitted by taxpayers over the age of 75. ⁸

5. Time limit: Pension contributions need to be actually paid within the tax year. Tax relief can only be claimed in the tax year in which payment is made. There is no provision to carry back or forward to other tax years.⁹

6.Tax free lumpsums: Life time allowance was abolished from 6 April 2024. But Tax free lump sum allowance is still £268,275 [25% of £1,073,100 (lifetime allowance)]. But this may be higher if you hold a protected allowance.

7. Tax planning:
a) An individual with only investment income can still save £2,880 (net) and get £20% back from HMRC in his pension pot + increase his basic rate band.

b) Additional savings can be made by individuals with income at margins of income tax rate bands e.g. an individual earning just above £50k or £100k.

Source:

1. Inheritance Tax on pensions: liability, reporting and payment – GOV.UK
2. PTM044100
3. Tolley Exam 29.7
4. Pension schemes rates – GOV.UK
5. Tolley Annual Income tax 56.24
6. Tolley Exam 29.8
7. Tolley Exam 30.3
8. Tolley Exam 29.4
9. Alan Melville Pg 206
10. Tolley Annual 56.23
11. HS345 Pension savings — tax charges which includes a calculator.

Update December 2024

HMRC has advised of the new process via Employer bulletin Dec 2024.

April 2020

I noticed some customers PAYE tax notices for employees come in post while others we can download via our software directly.

I realised there was an issue with the settings.

To resolve this issue follow the following steps:

1. Login to HMRC agent > PAYE for employers.
2. Click Change notice options
3. Apply to all clients
4. Put YES in all options on this page.

That’s it.

Now after couple of days you can start downloading all notices via software.

Good luck !

Please drop me an email if you find any errors or wish to suggest any improvements.

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By using this calculator, you acknowledge and agree that any reliance on the results is at your own risk. We recommend consulting with a qualified professional before making any decisions based on the information provided.

Roy Accountants Ltd is not liable for any losses or damages arising from the use of this calculator or the information it generates.

Please drop me an email if you find any errors or wish to suggest any improvements.