Tax tip: annual allowance

When making pension contributions care should be taken not to exceed the annual allowance as otherwise an annual allowance charge could be triggered.

What is the allowance?

The annual allowance charge is the amount by which total pension input in the tax year exceeds the annual allowance. This excess is then taxed at the taxpayer’s marginal rate.

The annual allowance is £60 000 for 2023-24 – having been £40 000 previously – but is increased by any unused annual allowance of the previous three tax years. This affords taxpayers the opportunity to make substantial pension contributions without a corresponding clawback charge.

Keep track

Keeping an annual track of one’s unused annual allowance is always good practice. For those who can afford it make sure that unused annual allowance does not go to waste by topping-up the pension. Unused relief for the tax year 2020-21 will...