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Higher rate relief melts away
Last November, the Chancellor announced that the annual allowance, which effectively sets a ceiling for tax-relieved pension contributions, would be frozen for five years after next tax year’s increase to £255,000. April’s Budget marked a more serious two-stage attack on the same target:
1. From 2011/12, tax relief for all pension contributions will
be at basic rate only if your annual income is at least
£180 000 If your income is £150 000 or more then
relief will be phased down from higher rate to basic rate
at £180,000.
2. From 22 April 2009, ‘anti-forestalling’ measures came
into effect, designed to prevent you from making large
one-off contributions before the 2011/12 restrictions
arrive.
Broadly speaking, these interim rules will only affect you in
2009/10 if:
• Your income after normal deductions (other than the
personal allowance and pension contributions) is
£150,000 or more in the current tax year, 2008/09 or
2007/08; and
• There is an unscheduled increase in the level of regular (quarterly or more frequently) contributions to your pension arrangements that were in force before 22 April 2009; and
• Your total pension contributions from all sources during the tax year are more than £20,000 (the special annual allowance).
Where you meet all three criteria, then as a general rule in 2009/10:
• Any contributions in excess of your total regular contributions will be subject to a 20% tax charge if those regular contributions exceed £20,000.
• Even if your total regular contributions from all sources are under £20,000, then you will be subject to a 20% tax charge to the extent that your total contributions exceed £20,000.
The precise definitions of income, regular and total pension contributions are extremely complex — there are 13 pages of Finance Bill legislation.
If there is one lesson to be drawn from these changes, it is the change in value of higher rate tax relief where it remains available. In the pre-Budget era, it was taken for granted. Now, it’s a case of ‘You don’t know what you’ve got till it’s gone’.
Levels and bases of, and reliefs from, taxation are subject to change and their value depends
on individual circumstances.
Last November, the Chancellor announced that the annual allowance, which effectively sets a ceiling for tax-relieved pension contributions, would be frozen for five years after next tax year’s increase to £255,000. April’s Budget marked a more serious two-stage attack on the same target:
1. From 2011/12, tax relief for all pension contributions will
be at basic rate only if your annual income is at least
£180 000 If your income is £150 000 or more then
relief will be phased down from higher rate to basic rate
at £180,000.
2. From 22 April 2009, ‘anti-forestalling’ measures came
into effect, designed to prevent you from making large
one-off contributions before the 2011/12 restrictions
arrive.
Broadly speaking, these interim rules will only affect you in
2009/10 if:
• Your income after normal deductions (other than the
personal allowance and pension contributions) is
£150,000 or more in the current tax year, 2008/09 or
2007/08; and
• There is an unscheduled increase in the level of regular (quarterly or more frequently) contributions to your pension arrangements that were in force before 22 April 2009; and
• Your total pension contributions from all sources during the tax year are more than £20,000 (the special annual allowance).
Where you meet all three criteria, then as a general rule in 2009/10:
• Any contributions in excess of your total regular contributions will be subject to a 20% tax charge if those regular contributions exceed £20,000.
• Even if your total regular contributions from all sources are under £20,000, then you will be subject to a 20% tax charge to the extent that your total contributions exceed £20,000.
The precise definitions of income, regular and total pension contributions are extremely complex — there are 13 pages of Finance Bill legislation.
If there is one lesson to be drawn from these changes, it is the change in value of higher rate tax relief where it remains available. In the pre-Budget era, it was taken for granted. Now, it’s a case of ‘You don’t know what you’ve got till it’s gone’.
Levels and bases of, and reliefs from, taxation are subject to change and their value depends
on individual circumstances.