01 MAY 2025

Technical Newsletter - May 2025

Issue 9 - May 2025

 

This is our first newsletter of the 2025/26 tax year, and as such we’ll focus on the opportunities that a brand new tax year presents for advisers and clients.

 

Contributions - why wait?

Many pension providers reported a flurry of last-minute contributions being made to pension plans at the end of the 2024/25 tax year. At the start of the new 2025/26 tax year, it is worth revisiting the valuable tax relief which is available from contributing and which sets a pension investment apart from other investment vehicles.

It’s also prudent to use the annual allowance early in year to give the contribution longer to grow once invested.

For UK resident investors, tax relief is available on personal contributions up to the lower of your gross annual earnings or the annual allowance, which is currently £60,000. Reduced allowances may apply to higher earners with ‘adjusted income’ in excess of £260,000, or to those who have already flexibly accessed their pension.

Employer contributions can also be made and here the main restriction is usually the individual’s annual allowance, with employer contributions themselves only needing to satisfy the condition that they are ‘wholly and exclusively for the purposes of business’ to qualify for corporation tax relief.

For UK resident taxpayers, up to 45% tax relief is available.

Pension contributions are also a very useful tool for those who are close to moving into a higher tax band, especially those who might be receiving a lump sum bonus, if their employer offers the ability to utilise salary sacrifice.

For example, Michael has received a bonus of £5,000 recently. His salary is £49,270, meaning that all but £1,000 of that bonus will fall into the higher rate tax band and potentially receive a 40% tax deduction. If, however, he opts to pay his bonus into his pension by way of salary sacrifice, he will receive tax relief on that contribution and save losing a significant part of his hard-earned bonus on income tax. In addition, employer and employee national insurance will also be saved on the contribution, making the pension saving even more tax efficient than usual.

Salary sacrifice can also be a particularly effective tool for directors of small companies as it can reduce both the employer and employer National insurance tax and contributions. This is pertinent for the new tax year, when the employer’s allowance has been reduced down to £5,000 and the employer National Insurance rate increased to 15%.

If we look a Michael’s example, we can see how savings are made by him directing his bonus straight into his pension.

• Gross salary; £49,270
• Bonus £0 (reduced by £5,000)
• Salary sacrifice pension contribution: £5,000 (up by £5,000)
• Income tax: £7,340 (reduced by £1,800)
• Employee NI contribution: £2,936 (saving of £160).

Pension contributions can also be a useful tool for overseas residents. Whilst they might not be eligible for tax relief, again they may be used to mitigate income tax deductions in their country of residence. Recent expats may also in some circumstances still benefit from some UK tax relief, so considering pension planning is always worthwhile.

IFGL pensions can accept contributions from either UK or non-UK residents and if you have any technical queries about anything contribution related, please email your question to: technical@ifglpensions.com.

If you have a member looking to make a contribution, please use our Contribution Declaration form.

 

Tracking down lost pensions

The start of a new tax year is another opportunity for a reminder of the importance of tracking down any lost pension pots your clients might have forgotten about over the years.

These days most people have built up savings in more than one pension and keeping track can be difficult. Bringing pensions together can help ensure that investment choices, personal information and expressions of wishes can all be kept up to date.

This article has some useful tips.

 

Commercial property

The concept of the SIPP, originally, was to allow investors access to a product which allowed investment into something less vanilla than the standard insured fund and in some cases quite specialised. Over the years, industry regulators brought in greater controls as a response to some high-profile investment loss scandals, culminating with the capital adequacy requirement of 2014 and the formal definition of what was a “standard investment” and a “non-standard investment”. As a result, most SIPP operators only allow investment into standard assets these days, which are usually collective investments.

The one exception is UK commercial property, which is an asset where the member retains a high degree of personal involvement and can also personally benefit from the tax breaks on offer. This is particularly the case where a business premises is placed into a SIPP or a SSAS.

So, what are the key benefits of doing this?

• Income Tax: Personal ownership of leased property can result in an increased personal income tax liability, especially for higher earners. Once in a pension, rental income is not taxed (in fact it’s classed as an investment return, so doesn’t even count as a a ‘contribution’ for annual allowance purposes).
• Corporation Tax: Rental payments are tax deductible and can be offset against business profit.
• Capital Gains Tax: If the client owns their own business premises, there may be a tax liability on disposal. Once ownership transfers to the pension, it is ringfenced from CGT, so any future growth is protected from further liability.
• Inheritance Tax: For the moment any assets held in a pension are protected from inheritance tax. This makes holding property in a SIPP or SSAS a useful inter-generational tool. From April 2027 both SIPP and SSAS are likely to fall within the remit of IHT for the first time. But using a spousal nomination, it can be possible for ownership of the property to pass on and avoid an immediate liability.

The process of moving property into a pension is simpler than some might realise. There are some complex HMRC rules to navigate, but it is worth advisers talking to clients who own a business premises about the option of using their pension to hold it. IFGL offers a SSAS product and Insight SIPP product which can both hold commercial property.

 

Inheriting Pensions - cover the basics

With all the debate following the Government announcement of its proposal last October to bring pensions within the scope of IHT from April 2027 onwards, it could be easy to get lost in the ‘hypotheticals and technicals’ of the mooted rule changes, and overlook the basics.

With pensions and inheritance topical, now is a good time to review expression of wish forms with your clients and prompt any amendments that are necessary. For example, assuming the Government presses on with its proposals, one way of deferring an inheritance tax liability will be to nominate a spouse to inherit a SIPP or a SSAS. In the meantime though, making sure that pension trustees know the client’s up to date intentions is just good sense, and can speed up the process of settling death benefits to beneficiaries if the worst happens.

The initial nomination of beneficiary is often made when the SIPP or SSAS is taken out, as it forms part of the application form. Often however, the nominations are then forgotten about as real life takes over and circumstances may change, for example through divorce and re-marriage.

Advisers can play an important role in ensuring they review these important documents with their clients as part of any annual client pension review.

 

IMPORTANT NOTE IFGL Pensions cannot accept any responsibility for any action taken or refrained from being taken as a result of this information.