Pension savers urged to take action ahead of vital January tax deadline

Financial expert explains how to get the most from your pension

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Pension saving, for the most part, can be a straightforward endeavour as people plan for retirement. However, there are certain rules to bear in mind, especially when it comes to tax. One such rule is particularly important given the impending Self Assessment tax deadline on January 31. Individuals who are actively saving into their pension will need to make a note of their annual allowance.

This is because the Government limits the amount of pension contributions a person will be able to make, and still earn tax on.

The annual allowance for pension contributions is 100 percent of a person’s income, or £40,000 – whichever is the lowest.

Any contributions over the limit are subject to income tax at the highest rate of pay.

If pension contributions exceed the annual allowance, a person will need to declare this to HMRC.

This can be done by filling out a Self Assessment tax return, with the deadline rapidly approaching.

The section to look out for in this document is entitled ‘pension savings tax charges’.

Individuals should be aware they can still claim tax relief for pension contributions on their Self Assessment tax return if they are above the annual allowance.

People who go above the annual allowance should expect to receive a statement from their pension provider on the matter.

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If this is the case, then either the provider or the person concerned will have to pay the tax.

In either circumstance, the individual must report the tax to HMRC. 

HMRC has stated four million people are yet to file and pay any tax owed.

The Revenue recently took the decision to waive late filing and late payment penalties for one month in a sigh of relief for Britons.

However, it is still urging people to fill their tax return and pay any outstanding liabilities.

Alternatively, they may also be able to set up a payment plan to manage their tax bill in instalments.

This should be done ahead of the deadline as interest will be applied to all outstanding balances from February 1 onwards.

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Myrtle Lloyd, HMRC’s Director General for Customer Services, said: “We know some customers may struggle to meet the Self Assessment deadline on January 31.

“This is why we have waived penalties for one month, giving them extra time to meet their obligations.

“And if anyone is worried about paying their tax bill, they can set up a monthly payment plan online – search ‘pay my Self Assessment’ on GOV.UK.”

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