Year End Tax Review 2010/2011


Lead articles

Looking forward

This year, next year

Rate of change

Pension merry-go-round


Too much NIC

NIC and pensions

Company cars

Tax-free benefits

Childcare vouchers

Business - General

Time to incorporate?

Associated or not?

His and hers

Family bonus

Profit and loss

Show me the money

Can't pay, won't pay?

Turning back the clock

Business - VAT

Standard VAT or flat VAT?

VAT's up again

All Europeans now

A good start for VAT

Happy returns?


Top-up savings

Rainy day money

Capital Gains

Gains favoured

Splitting gains

A place in the country

Holiday lets reprieved


Family fortunes

Where there's a Will

Credits and debits

Benefit going

Piggy banks

Still trustworthy?


Penalty shoot-out

Going online

Paperwork, paperwork

Pay tax later

Opportunity knocks again


Give and save

Non-Domiciled People

Home and away


Interesting times

Rainy day money

The tax reliefs for pension contributions are there to help you provide for retirement. Most people are reluctant to put enough away, so the taxman offers a big incentive - if you are a higher rate taxpayer, then putting £600 in will buy you £1,000 of investments which are held in a tax-free fund. The special rules for people who earn over £130,000 have been covered in an earlier article. For people who have modest earnings and who make contributions, there have been no significant changes recently.

You get tax relief on most pension contributions by paying them net of basic rate tax, and the government pays the other 20% into your policy. A higher rate taxpayer gets the other 20% through the self-assessment return. If you're having a good year this year - paying 40% tax - but you are expecting to suffer a downturn and might only pay at 20% next year, you should consider advancing your normal pension payments before 5 April so that you get higher rate relief.

The money is saved up to give you a tax-free lump sum of up to 25% of the fund when you take the benefit and a taxable income after that. Annuity rates have not been attractive in recent years, but if you are going to live a long time there are few better ways to save up the money to live on.

The other big issue at the moment is a change to the rules on taking the benefits. For years it has been a requirement of the tax rules that the policy must be cashed in no later than the holder's 75th birthday. This involved fixing an annuity at that time, which might be disadvantageous. Mr Osborne has announced that this is to be made more flexible, and anyone who is thinking of taking benefits or who is approaching the age of 75 with undrawn benefits should take advice about the options available.

You can get pension relief on up to 100% of your current earnings, so you can make the whole of your tax liability for the year disappear. Of course, you need something to live on, but if you receive a cash windfall say a legacy then bumping up your pension fund might be something to think about.

Action Point!
Do you need to take advice about your pension investments?