Home Finance Everyone with a pension warned over ‘backdate’ trick to avoid tax

Everyone with a pension warned over ‘backdate’ trick to avoid tax

Everyone who has a private pension scheme like a workplace pension paid into by their employer has been warned over a ‘backdate’ trick to avoid paying as much tax.

The totally legal loophole allows you to avoid paying as much tax as you would have in a given year using a method which ‘backdates’ your pensions annual allowance.

Each year, there is a limit on how much you can pay into your workplace pension. This is called the pensions annual allowance.

It’s set at £60,000 for the year currently, and was increased last year by £20,000.

Every £1 you put into your pension over £60,000 will be taxed at your income tax rate. And if you are putting £60,000 into your pension you’re probably not a basic rate payer, meaning you’re probably losing 40 or even 45 percent of everything over £60k to tax.

But you can, when doing your self assessment tax return, carry over unused allowances from the previous three years – or even the previous four if you have never done it before.

This could be useful if you suddenly increased your earnings and have spare allowances from previous years, or you had a one-off windfall such as inheritance and decided to stuff some of it in your pension.

By checking and transferring some personal allowance you could save yourself thousands in tax on your pension.

Gov.uk explains: “An annual allowance limits the amount someone can pay into pension schemes each year before they must pay tax. It is £60,000 in 2024/25.

“A person cannot usually receive tax relief on pension contributions worth more than 100% of their annual earnings. However, people can still contribute £3,600 a year into a pension with tax relief even if they earn less than this.

“You’ll get a statement from your pension provider telling you if you go above the annual allowance in their scheme. If you’re in more than one pension scheme, ask each pension provider for statements.

“You might be able to carry over any annual allowance you did not use from the previous 3 tax years.”


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