Tax relief is available on contributions to UK registered pension schemes.  Contributions are made either through employments, directly to pension funds by individuals or, perhaps by contributions made by an individual’s personal company on behalf of a director.

The tax relief can reduce the amount of income tax an individual pays or the amount of corporation tax a company pays depending on who has made the contribution.

• Take advice regarding the most tax efficient way of making contributions.

There are limits on the amount of contributions that can be made in respect of an individual in a tax year and this is known as the annual allowance.  The limit can be affected by the level of taxable income an individual has and contributions in excess of these limits attract an additional tax charge.  

The annual allowance for contributions can be carried forward for three years if unused in a year.

When an individual reaches retirement age, typically 55 years old, but this is lower for certain recognised professions, then pension benefits can be take.  Some of the fund can be taken tax free and the rest is subject to income tax.

• Take advice regarding the timing of taking pension benefits to minimize the amount of income tax that may be due.

Inheritance tax

Changes announced in the Budget in October 2024 brought pension schemes within the scope of inheritance tax.  Previously, the value of a pension fund was not included in the estate of a deceased person and could pass to beneficiaries.

Following the changes, from April 2027 the value of the fund is included to an individual’s estate and is subject to inheritance tax.  

• Consider how the changes affect your overall estate planning and whether steps can be taken to mitigate exposure to inheritance tax.