Pension annual allowance

Individuals are able to make tax-relieved pension contributions up to the higher of 100% of earnings and £3,600, subject to having sufficient annual allowance available. The annual allowance is set at £40,000 for 2021/22.

Where the allowance is not fully utilised, it can be carried forward for up to three years. Thus, for 2021/22, the available annual allowance is that for 2021/22, plus any unused allowances for 2018/19, 2019/20 and 2020/21. However, the current year’s allowance must be used fully before using up brought forward allowances, with earlier years being used first. Any brought forward allowances from 2018/19 will be lost if not used by 5 April 2022.

The pension annual allowance is reduced where both threshold income (broadly income excluding pension contributions) is more than £200,000 and adjusted net income (broadly income including pension contributions) is more than £240,000. The allowance is reduced by £1 for every £2 by which adjusted net income exceeds £240,000 until the minimum annual allowance of £4,000 is reached. This will be the case where adjusted net income is more than £312,000 (and threshold income is more than £200,000), and should be taken into account when planning pension contributions.

A separate allowance – the money purchase annual allowance (MPAA) – is available where a money purchase pension pot has been flexibly accessed after age 55. For 2021/22, it is set at £4,000.

Speak to us about whether it is worthwhile making pension contributions prior to 6 April 2022.

Inheritance tax annual gift allowance

All individuals have an annual gift allowance of £3,000 a year for inheritance tax purposes. This allows them to make gifts of up to £3,000 a year without the gifts being added to the value of their estate for inheritance tax purposes. The allowance can be carried forward to the following tax year if it has not been used. Thus, if you have not yet used your allowance for 2020/21 or 2021/22 you can make £6,000 of gifts IHT-free by 5 April 2022.

Speak to your professional adviser to ascertain how you can use the annual allowance and other exemptions to make gifts free of inheritance tax.