If you don’t want to lose a tax break on pensions, you need to act, says Rebecca O’Connor in The Times. On 31 January, the tax break known as ‘carry back’ – which allows savers to make a contribution to a pension, but treat it for tax purposes as if it had been made the previous tax year – will disappear, in advance of the changes to the system that come into effect on 6 April.
Those most likely to be able to take advantage of the tax break are savers who currently pay income tax at the basic rate, but who paid higher-rate tax the year before.
Carry back is also traditionally a “boon” for the self-employed, whose incomes fluctuate, women who have been on maternity leave, and for the recently retired. Take someone whose income has dropped from £50,000 in the 2004-2005 tax year to £20,000 this year. He or she would gain £894 in extra tax relief on a contribution of £4,800 using the carry-back rule.
Those worried about the £1.5m liftetime limit on pensions should also act, says Hargreaves Lansdown’s Tom McPhail: savers with large pots who have applied to Revenue and Customs to protect any assets pre-6 April could find that this is their last opportunity to “wedge in a bit of extra money”.