If you do not use your annual pension allowance before the Budget, you could lose it, according to leading audit, tax, and business advisory firm, Blick Rothenberg. Chris Boulet, a Partner at the firm, explained that the Chancellor may make difficult decisions in the upcoming Budget, and one area she may look at is pension payments and the three-year carry forward relief.
Pension payment tax relief allows any unused annual pension allowances from the previous three tax years to be carried forward. This means you can still claim unclaimed tax relief if you had a pension plan in the previous three years and did not pay up to your annual pension allowance. However, there is a possibility that the carry forward relief could be reduced to one year or removed entirely, similar to ISA allowances.
The carry forward relief is beneficial for individuals with fluctuating income or cash flow, especially lower earners facing the cost-of-living crisis. It is also useful for higher earners who want to maximize their income tax relief in years with greater earnings and higher tax rates.
Considering the potential changes to pension payment tax relief in the Budget, individuals who have not maximized their contributions should consider doing so if eligible. Taking advantage of tax relief now could mitigate the impact of any future pension changes the Chancellor may introduce.
To carry forward pension payment tax relief, certain conditions must be met, including being an active member of a UK-registered pension scheme in the year you are claiming carry forward relief, using your current year allowance before accessing previous years’ relief, and having sufficient relevant earnings to absorb your total gross pension payments.
It is important to stay informed about any potential changes to pension payment tax relief and take action to maximize your contributions before any adjustments are made. By understanding the implications of these changes, you can make informed decisions about your pension planning and financial future.
