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29 January, 2020   |   By Fiona Tait, Technical Director   |   Market News


Tax Year End Planning

It’s that time of year again - with the tax year end approaching we urge clients to make the most of their annual allowances, including those applicable to pensions.

It is also worth bearing in mind that the 2019/20 tax year end (TYE) is preceded by Sajid Javid’s first budget following the recent general election. This means that we are back in a situation, last seen in 2016 before Phil Hammond demoted the spring budget in favour of a ‘single fiscal event’ in the autumn, where it may be worth making contributions before the deadline in order to ensure you benefit from the current tax regime.

Here are the things to consider in relation to pension planning.

Key facts:

  • Tax relief is available on personal contributions of up to 100% of your net relevant earnings.
  • For most people, tax relief on total pension contributions, including those from your employer, is limited to contributions up to the Annual Allowance of £40,000.
  • Higher earners, usually defined as those with income of over £150,000, may be subject to a taper which reduces their Annual Allowance (AA) by £1 for every £2 earned, down to a minimum of £10,000.
  • Individuals who have taken income from their pension may be additionally subject to the Money Purchase Annual Allowance (MPAA) which restricts tax relief to contributions up to £4,000.

Planning issues:

  1. Pension v ISA

Pensions and ISAs are both tax efficient investment wrappers. The returns from each depend on a number of factors, most notably investment choice, market conditions and charges, however the different tax treatment will also have an effect.

Tax treatment

Pensions receive tax relief up front which makes them very suitable for higher and additional rate tax payers, where the boost to the initial investment may outweigh the effects of tax later on (especially if you think you will be a basic rate tax payer when you come to take benefits). For basic rate taxpayers the situation is less clear, and you may want to base your decisions on other factors such as timing


The ISA annual allowance applies on a ‘use it or lose it’ basis, so if you don’t maximise savings in this tax year you will be unable to take advantage of the unused allowance later on. Unused pension Annual Allowance may however be picked up and used up to 3 years later (see below). In addition, withdrawals from ISAs are tax-free and it is therefore possible to reinvest the proceeds in a pension (subject to contribution limits) at a later date.


Monies held within an ISA can be accessed at any time (subject to possible notice periods), and are tax-free, making them more attractive for short-term saving. For younger people pensions are a long-term savings vehicle but it worth remembering that this situation changes at age 55* when the fund becomes available in full. Pension withdrawals are however likely to be taxed and should be carefully planned.


If you can, make the most of both annual allowances. If not, consider the timescale of your investment and whether up front tax relief is likely to be more advantageous.

Tip: remember you can also make pension contributions for another person, up to £3,600 or 100% of their earnings. These contributions will attract tax relief in their pension (even for non-tax-payers), although you will not receive any yourself. As such a £3,600 contribution on this basis will actually only cost £2,880.

*Under current government proposals this is scheduled to increase to age 57 in 2028.

  1. Maximising pension contributions

It is possible to receive tax relief on contributions above the annual allowance by carrying forward unused relief from previous tax years. This is especially suitable for high earners, individuals who have received a taxable bonus or redundancy payment and those who want to maximise contributions before starting to take income and triggering the MPAA.


  • You must utilise your full AA in the 2019/20 tax year before using carry forward. This is particularly likely if you are subject to the tapered AA.
  • You can carry forward any unused AA from up to three previous, starting with the earliest. This is the last opportunity to utilise unused AA from 2016/17, which will drop out of scope after 6 April. 
  • You must have been a member of a pension scheme in year of the unused AA, although you need not have been actively contributing. This means you can effectively ‘catch up’ on any ‘lost’ pension years.

Tip: If you have any family or friends who have yet to start a pension it might be advantageous to start one before the end of the tax year. This will give them scope for more contributions in the next few years.

Warning: you do not have to make an actual claim to use carry forward, however you should ensure that evidence of your calculations is available. You should also inform HMRC of any excess payments via your tax return. Failure to do this can result in a further penalty. 

  1. High Earners

The annual allowance taper applies to anyone with income of over £150,000. It is essential to note that this includes all taxable income and not just earnings. If you have other sources of income such as rental income it must be included. 

If you are in this category Intelligent Pensions will be happy to calculate your maximum pension contribution for you, however it is essential that we have full information on your income and pension contributions over the last 4 tax years (including this one). If you would like us to do this please contact us in plenty of time ahead of the tax year end to request the appropriate form and/or discuss further.

This service is included within our ongoing service fee.

Tip: If, even after all this planning, your AA tax charge exceeds £2,000 you can ask your scheme to pay it for you but remember to include it in your tax return to avoid penalty.

  1. Other planning issues

Tax relief

Pension tax relief is normally given at your marginal rate of income tax, however there are scenarios where the effective rate may be even higher. Making a pension contribution reduces your taxable income which means that could avoid additional tax charges.



Child benefit test

Ceases to be available when income exceeds £50,000

Personal Allowance

The PA is reduced by £1 for every £2 of income in excess of £100,000

Threshold income

Tapered AA does not apply if income is less than £110,000


Salary sacrifice

It is still possible to ‘sacrifice’ earnings in favour of an equivalent pension contribution and receive both tax relief and a saving in National Insurance Contributions. This also has the effect of reducing taxable income (see above).

Lifetime Allowance

The Lifetime Allowance (LTA) is likely to increase to £1.073m on 6 April. This may make it worthwhile waiting until after the tax year end before taking pension benefits. Intelligent Pensions offers an LTA calculation service.

This service is included within our ongoing service fees where the advice relates solely to your pension(s) with us, but where we identify the need to consider action in relation to any other pension arrangement(s) you hold we may charge a consultancy fee for preparing a report. This will be confirmed in advance of carrying out any work.

Future taxation

Following their re-election with an increased majority the government may take the opportunity to introduce a flat rate of tax relief which could benefit basic rate taxpayers but would mean the future contributions are less advantageously treated for higher and additional rate tax payers. We are hopeful that this would only happen after an in-depth review however it is not unknown for chancellors to spring surprises such as this on us without any notice. Watch out for the budget!