Countdown to Tax Year End – Part One

We have hardly recovered from Christmas and 2021 has only just got properly started, but it is already time to start preparing for the end of the tax year. With the 6th April coming closer every day, with a new set of tax allowances – the next few weeks are the last chances to make the most of your tax allowances for this year.

Tax and pensions are closely related. The first step to making the most of your tax allowances can mean looking closely at your pension.

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The first thing to remember is that any UK resident under 75 can add money to a pension and receive tax relief on it. You’ll automatically get basic rate tax relief (currently 20%) paid into your pension by the government.

If you pay tax at a higher rate you could get up to a further 25%, but you’ll need to claim it by declaring any pension contributions you’ve made on your tax return.

If you haven’t completed your tax return yet, make sure you include any pension contributions you made in the 2019/20 tax year (6 April 2019 to 5 April 2020). If you pay tax at a higher rate, it could help to significantly reduce your tax bill, and unlike base rate contributions, the deductions are not made automatically.

You need to be sure that you let HMRC know how much you are paying into your Pension. If you have already completed your tax return online and did not declare what you have paid in, you can still log back in and amend it before the end of February.

Any additional tax relief will either be provided by paying it directly to you, by adjusting your tax code or – most usually – by reducing your tax bill. In the ‘Tax reliefs’ section of your tax return, include the total gross value of your pension contributions under ‘Payments to registered pension schemes where basic rate tax relief will be claimed by your pension provider’.

The gross value is the amount you have actually paid in, plus basic rate tax relief from the government.

The limits to the taxman’s generosity

To make the most of your pension, you need to know the Pension allowances that you are entitled to. If you have not used them to the full, there may still be time to top them up – and start planning on how you will use them next tax year.

The annual allowance

The annual allowance is the maximum you can invest in your pension each year, that would be eligible for tax relief. It is currently £40,000, or your entire income, whichever is the smaller.

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What can you afford to pay in? Arranging a financial review with a Continuum adviser could let you see your current financial position more clearly. Call us now for an individual review.

The Lifetime Allowance

The Lifetime Allowance, or LTA is the maximum you can put into your retirement pot. It is linked to inflation and for the 2020/2021 tax year it was increased from £1,055,000 to £1,073,100.

Again, it might seem an impossibly large figure. In practice, people on a middle income can often approach this figure after 40 years of contributions and some successful investment for growth from pension fund managers.

If you have not hit your LTA all well and good – but if you do you will be faced with tax penalties. You need to get some expert help from the Continuum team without delay.

What about Tapered allowance?

There is an additional limit on pension tax relief for people on the largest incomes, known as tapered relief. They can stillsave up to £40,000 each tax year, but for every £2 your adjusted income goes over £240,000, your annual allowance for the current tax year reduces by £1. The minimum reduced annual allowance you can have in the current tax year is £4,000.

There are ways to reduce the impact of the taper, certainly ways to keep building your wealth if you have already reached the lifetime allowance, and definitely ways to make the most of your tax allowances.

Having the pension pot you need for a comfortable retirement will be very much easier if you make the most efficient use of your allowances and now with the tax year about to turn, is the time to do it.

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The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Retirement or investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.

The Financial Conduct Authority does not regulate taxation advice.

The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.

All information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation, are subject to change.


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