You can backdate the loss relief to either of the two tax years before the one in which you make the claim, provided that you owned the asset in the earlier tax year and it was already of negligible value. The deadline for backdating a claim to 2021/22 is 5 April 2024. PENSIONS PLANNING Pension contributions benefit from a number of tax reliefs, which are widely viewed as under threat in future Budgets. Pension funds are broadly free of UK tax on their capital gains and investment income. When you draw the benefits, up to a quarter of the fund is normally tax free, although the pension income will be taxable. Contributions If you have surplus income, you may wish to consider increasing your pension contributions to boost your retirement funds. There is a general annual limit of £60,000 on pension contributions that qualify for tax relief. However, if your income (including any pension contributions made by your employer) exceeds £260,000 the limit is tapered down, with a minimum of £410,000 applying if the figure is £360,000 or more. You can carry forward unused annual allowances for up to three tax years to offset against a contribution of more than your annual limit. If you are already drawing a flexible income from a pension, the annual allowance is £410,000 and you cannot take advantage of carry forward. SPECIAL REPORT | December 2023 | Year End Financial Planning 6 ● You can pay up to your entire annual earnings into a pension scheme in any one tax year, but tax is capped by the annual allowance plus any unused allowances brought forward. ● Unused allowances are calculated based on the annual allowance from the tax year they are brought forward from. For the last three tax years (2020/21–2022/23), this was a maximum of £40,000, rather than the current £60,000. ● Tax relief on pension contributions is normally at least 20%, with higher and additional rate taxpayers receiving relief at 40% or 45%. In Scotland, intermediate, higher and top rate taxpayers receive relief at 21%, 42% or 47% respectively. ● Tax relief is greatest where it exceeds the eventual tax on benefits, for example, where a higher rate taxpayer becomes a non- or basic rate taxpayer in retirement. ● Limiting your contributions to amounts that qualify for tax relief at the higher rates will give you the most benefit. ● Effective relief can be as high as 60%, or 63% in Scotland, where the personal allowance is being withdrawn, and can be even higher if tax credits or Universal Credit payments are being withdrawn. ● You could set up a pension for a non-working partner or your children since they don’t need earnings to contribute up to £3,600 in a personal pension. Even if they do not pay any tax, they can still benefit from 20% tax relief. Lifetime allowance The pension standard lifetime allowance is £1,073,100 in the tax year 2023/24, the allowance’s last year of existence. The maximum amount of cash you can take tax-free from your pension is 25% of this amount, i.e. £268,275. A higher allowance can apply if an appropriate claim has been made. In previous years, you would have paid a lifetime allowance charge on any pensions savings over this amount. But from 6 April 2023 that charge has been removed. Certain lump sum payments which would have been subject to a lifetime allowance charge are instead subject to income tax at the recipient’s marginal rate. Planning point CGT is normally payable by 31 January after the end of the tax year in which you make the disposal. You could therefore delay a major sale until after 5 April 2024 to give yourself an extra 12 months before you have to pay the tax, but you’ll need to weigh this up against the impact of the reduced annual exempt amount. (For a non-exempt residential property disposal, a payment on account of CGT must be made within 60 days of completion.) Credit: AlisaRut\shutterstock.com
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