Another great way to save tax is to consider putting more money into a pension, and under the current rules for the tax year, 2022/23 the maximum gross contributions are eligible for tax relief each tax year are the lower of your gross earned income and £40,000. That includes employer and employee combined contributions, and if this annual allowance is exceeded a tax charge, applies on the excess unless it can be covered by using carry forward from previous tax years.
Note very high earners may have a lower annual allowance, and if in doubt, seek financial advice.
Increasing your pension contributions is a very efficient way of saving for retirement. By putting more money into your pension, you will be able to build up a larger pot of money, which could provide you with a more comfortable retirement income.
It is also worth considering increasing your pension contributions if you have recently had a pay rise, or come into some extra money. By doing this, you will ensure that you are making them most of your finances and making them worse of your retirement prospects.
You can also carry forward unused allowances from the previous three tax years, subject to certain rules, providing further scope for making larger contributions. If you earn over £100,000 making pension contributions can be highly advantageous. Your personal allowance is reduced by £1 for every £2 of income above £100,000
This means your allowance is zero if your income is £125,140 or above.
However, if you make a pension contribution, this comes off your income figure for this purpose.
So if the gross contribution is enough to reduce your total income below £125,140 you are able to offset or remove the reduction in your personal allowance.
As you can see, making use of these allowances and reliefs could save you a significant amount of money in taxes every year.
And if you need help with this, then please get in touch, or speak to your own financial advisor.
I hope you found this week helpful and as always, please leave comments or what topics that you want covered next time.