In October we passed the tax year halfway mark, but how prepared are you for 5 April 2023? You still have time to make the most of it, so here’s what you need to know about your pension and savings allowances before the tax year is up.
With everything going on this year, it wouldn’t be unusual if making the most of the tax year isn’t at the top of your to-do list. But in many cases, your allowances only last for a year. So after 5 April they’ll renew and anything you haven’t used yet could be lost.
The earlier you start making the most of all the tax benefits you have at your fingertips, the more you could benefit in the long term. That’s why it’s important to be aware of what you’ve got, and what you’ve used. Here’s what you need to know about your allowances.
Pension Annual Allowance
The Pension Annual Allowance is the total amount that you, your employer and any third party can pay in across all your pension plans in a tax year and still get tax benefits. Pay in more than this and you may get a tax charge.
Right now, the standard Annual Allowance is £40,000 or your full salary – whichever is lower. If you’re nearing your Annual Allowance, you may be able to make the most of any unused allowances from previous tax years to maximise your pension payments. To find out more about how this works read our Annual Allowance guide.
It’s worth knowing that if you decide to take a flexible income (sometimes known as drawdown) from your pension plan, then you may have a lower allowance. In this case, when you start taking taxable income (anything over your 25% tax-free entitlement) from your plan, the Money Purchase Annual Allowance will apply – which is £4,000 for the 2022-23 tax year.
The ISA (Individual Savings Account) allowance in 2022-23 will be £20,000. That means you can save up to £20,000 into a Cash or Stocks & Shares ISA, or a combination of both.
The Junior ISA allowance stays at the current level too, which is £9,000.
For Lifetime ISAs, the allowance is £4,000. Remember, you get a 25% government bonus on top of anything you save into a Lifetime ISA. Which means each tax year you could get up to an extra £1,000 on top of your savings. So now could be a good time to think about getting as much of that extra boost as you can before the year is up.
The Lifetime Allowance is the total amount you can build up across all your pension plans. If you go over the Lifetime Allowance, you’ll likely need to pay a tax charge on anything you take above the limit.
For the 2022-23 tax year, the limit is £1,073,100 and it has been frozen at this level until the 2025-26 tax year.
You can find out if this might affect you, what the charges are and what to do if your pension pot is close to or beyond the allowance in our Lifetime Allowance guide.
How to make the most of your allowances
To get the most out of your allowances, you might want to consider paying in as much as you’re able to in that tax year. That way you can get as many tax benefits as possible. That doesn’t necessarily mean paying in the full allowance, it just means paying in as much as is realistic and stable for you at the time.
Just taking the time to consider how much you’re paying in now and if there’s any way to pay in more could go a long way. Even paying in as little as an extra £10 a month, or just keeping your payments the same instead of reducing them, could help in the long term. Particularly if you’re paying into an investment like a pension plan or a Stocks & Shares ISA where there’s opportunity for your money to grow over time.
Remember the value of investments can go down as well as up and you may get back less than was paid in.
If you have a Standard Life pension plan and want to review your pension payments, you can do this online or through our app.
Is now the right time to pay in?
With everything going on just now, money could be tight, and paying more into your pension plan or other savings accounts might not be your priority. You have to think about what’s right for you. Making sure you can support yourself and any dependants should always be your top priority.
Remember, everything you’ve paid in so far will still help towards achieving your goals. And if now isn’t the right time to pay in more, you can always revisit your payments at another time. You could even set yourself a reminder to do this in a few months’ time.
However, it’s worth keeping in mind that now actually could be a good time to take advantage of paying in more if you’re able to. The current climate means that investments are essentially cheaper than normal – meaning you’re getting more for your money.
For help and support with money worries or your pension plan, visit our website.
The information here is based on our understanding in November 2022 and shouldn’t be taken as financial advice.
A pension plan and some types of ISAs are investments. Their value can go down as well as up and may be worth less than was paid in.
Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.
Standard Life accepts no responsibility for information on external websites. These are required for general information.