Incentives for savings
- Income tax relief on contributions
- Investment profits from a pension fund are exempt from income tax or capital gains tax.
- 25% of the pension can be taken as a tax free lump sum known as the pension commencement lump sum (PCLS) in most cases. There are some scenarios then this isn’t the case.
- Access to Flexi Access Drawdown meaning you can take benefits as and when you want
- Favourable tax treatment of death benefits of Defined Contribution pensions. You can pass on a pension free on Inheritance Tax and more favourable tax treatment of death benefits, particularly where the member (or subsequent beneficiary) dies before the age of 75.
- Employers have started to offer its employees finance advice via an financial adviser for the pension scheme it runs and under HMRC rules the advice is not treated as a benefit in kind as long as the advice is offered to all employees and the cost is below £500 for each employee. Any excess is subject to income tax and NICs.
Question - Use Your Note Taker To Jot Down Ideas / Calculations
In terms of the amount that an individual can pay into a pension scheme and the tax relief available on that contribution, it is CORRECT to say that there are:
Select one:
a) no limits on the contributions that can be paid nor on the tax relief available.
b) limits on both the contributions that can be paid and the tax relief available.
c) no limits on the contributions that can be paid but there are limits on the tax relief available.
d) no limits on the tax relief available but there are limits on the level of contributions that can be paid.
C)
There is no limit on the amount that someone can put into their pension each year, but there is a limit on how much you can get tax relief on. For most people this will be £40,000 unless they are subject to the Tapered Annual Allowance or Money Purchase Annual Allowance rules.