The pensions allowance rules changed from 6 April 2020; Meg Saksida explains how.
Pensions savings can be extremely tax-efficient, as outlined below.
Pension tax breaks
Firstly, any pension contributions are made before income tax if they are in an occupational pension scheme; if in a personal pension scheme, any tax paid can be offset in the individual’s self-assessment tax return. Secondly, once in the scheme, any increases in the value of the funds are not taxed.
Finally, once they are being paid out to the pensioner (who will usually at this point have a reduced income and therefore a reduced tax rate band and a lower tax rate) depending on their other income, other tax benefits may be available such as the starting rate band, the personal savings allowance and the dividend allowance.