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For nearly two decades, Davenport Thomas’s highly experienced team has worked closely with numerous accountancy practices to support their clients with a wide range of financial planning needs.

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Act now to Reduce a Personal Tax Bill

19th Jan 2024
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For nearly two decades, Davenport Thomas’s highly experienced team has worked closely with numerous accountancy practices to support their clients with a wide range of financial planning needs.

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Now we’re settling into the New Year, it’s a great time to conduct a health check on your finances before the end of the tax year. With many tax allowances frozen, take time to consider whether you are doing everything you can to make your money work hard for you. And are you helping your clients to do the same? As the 2023/2024 tax year draws to a close, here are some pensions concepts we are regularly using with Accountants, Employees and Limited Company Directors.

 

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  • As a higher rate taxpayer, you can reclaim an additional 20% tax on your pension contributions, to get a total of 40% tax relief. However, this higher rate tax relief won’t be applied automatically, it needs to be actively claimed via self-assessment

 

  • The Annual Allowance for contributions to benefit from tax relief is currently £60,000 or 100% of your earnings, whichever is lower.  But you can also carry forward unused allowances from the past three years, provided you were a pension scheme member during those years. Carry forward allows you to make pension contributions that exceed your Annual Allowance and still benefit from tax relief. If you have savings on the sidelines and unused allowance(s), depending on your personal circumstances, it may make sense to contribute to your pension. You could, in fact, make a total contribution of £180,000 using carry forward (earnings and individual circumstances permitting)

 

  • If you’ve got profits in a limited company, your pension contribution can be treated as an expense to the business, saving you Corporation Tax.  As long as it meets the “wholly and exclusively rule”.

 

And keep an eye out for the ‘60% tax trap’, applicable to earnings between £100,000 and £125,140:

  • For every £2 you earn over £100,000 you lose £1 worth of your £12,570 tax-free Personal Allowance. Once income reaches £125,140 this allowance is lost entirely and earners in the £100,000 to £125,140 bracket will have to pay 60% on that portion of their earnings. The good news is that making pension contributions can help you to avoid this trap. With careful planning, you can reclaim your personal tax allowance and enjoy tax relief on the amount you pay into your pension.  I.e. If you are earning £125,140, via salary sacrifice or via Personal Pension contribution you can opt to have £25,140 in your pension rather than receiving a net amount of just £10,056.

Things to consider

At Davenport Thomas, we have been helping Accountants, Employees and Limited Company Directors secure high levels of tax savings whether personal or through the business for over 18 years.

If you/your clients are a higher rate taxpayers, have savings and would like to discuss this further please book directly into my diary, drop me an email, or give me a call.

 

Due to high levels of work volumes at this time of the year, the deadline for all new enquiries will be 1 March 2024 (relating to contributions for the 2023/2024 tax year).

[email protected]

Contact number – 0208 6182077

Calendly – Richard Mumford

 

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The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. A pension is a long-term investment not normally accessible until 55 (57 from April 2028).