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News
Higher rate pension relief in trouble
The government has reduced the tax relief on pension contributions for people with high incomes. This has implications for many people - not just the high earners directly affected.
The restrictions will apply if your total income is £150,000 in the current year or was at this level in either of the two previous tax years. The new rules cover both individual and employer pension contributions into any registered pension schemes ranging from personal pensions to final salary-related schemes. The higher rate tax relief is taken away through a special tax charge on you personally. The rules were introduced in the Finance Act 2009 and will be replaced from 2011/12.
For the tax years 2009/10 and 2010/11, people with incomes of at least £150,000 can still benefit from full tax relief on limited levels of contributions. The rules are complicated. Quarterly or more frequent contributions started before 22 April 2009 are basically not affected and there is an annual allowance of at least £20,000 of contributions, which can be higher in certain circumstances. Ask us for details if you think you might be affected now or in the future.
From 2011/12, the restrictions on tax relief are due to be generally tighter. For incomes of at least £180,000, the tax relief for all pension contributions will be at basic rate only. For incomes between £ 150,000 and £ 180,000, tax relief will be tapered down from the higher rate to the basic rate. Tax relief at your highest marginal rate will still be available for all pension contributions if your income is less than £150,000.
The restrictions raise the question of whether it makes sense to contribute to a pension if relief is limited to basic rate relief. If you are a higher rate taxpayer in retirement, the rules mean you would have received contribution tax relief at a lower rate than you would be paying tax on your pension.
As is often the case with personal finances, matters are rather less straightforward. Ultimately, a decision about the relative benefits of 20% tax-relieved pension contributions will depend upon your personal circumstances and retirement planning objectives. If you are below the £150,000 threshold and qualify for higher rate tax relief, it is probably a good idea to take full advantage of the situation while it still lasts.
Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor.
The government has reduced the tax relief on pension contributions for people with high incomes. This has implications for many people - not just the high earners directly affected.
The restrictions will apply if your total income is £150,000 in the current year or was at this level in either of the two previous tax years. The new rules cover both individual and employer pension contributions into any registered pension schemes ranging from personal pensions to final salary-related schemes. The higher rate tax relief is taken away through a special tax charge on you personally. The rules were introduced in the Finance Act 2009 and will be replaced from 2011/12.
For the tax years 2009/10 and 2010/11, people with incomes of at least £150,000 can still benefit from full tax relief on limited levels of contributions. The rules are complicated. Quarterly or more frequent contributions started before 22 April 2009 are basically not affected and there is an annual allowance of at least £20,000 of contributions, which can be higher in certain circumstances. Ask us for details if you think you might be affected now or in the future.
From 2011/12, the restrictions on tax relief are due to be generally tighter. For incomes of at least £180,000, the tax relief for all pension contributions will be at basic rate only. For incomes between £ 150,000 and £ 180,000, tax relief will be tapered down from the higher rate to the basic rate. Tax relief at your highest marginal rate will still be available for all pension contributions if your income is less than £150,000.
The restrictions raise the question of whether it makes sense to contribute to a pension if relief is limited to basic rate relief. If you are a higher rate taxpayer in retirement, the rules mean you would have received contribution tax relief at a lower rate than you would be paying tax on your pension.
As is often the case with personal finances, matters are rather less straightforward. Ultimately, a decision about the relative benefits of 20% tax-relieved pension contributions will depend upon your personal circumstances and retirement planning objectives. If you are below the £150,000 threshold and qualify for higher rate tax relief, it is probably a good idea to take full advantage of the situation while it still lasts.
Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor.