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Pension contributions made by an
individual are usually paid net of basic
rate tax. Where the individual is a higher
rate taxpayer further relief is due which
significantly reduces the net cost of the
contribution.
In the Budget this year the government
announced its intention to restrict tax
relief on pension savings with effect from
6 April 2011 for people with taxable
income of £150,000 or more. The relief
will be tapered down until it is 20%.
Legislation has been introduced to
prevent those potentially affected by the
new rules from seeking to forestall this
change by increasing their pension savings
in excess of their normal regular pattern.
The legislation has been amended on its
way through the parliamentary process.
The forestalling measures as originally
proposed potentially apply to individuals
with incomes of £150,000 or more who, from
22 April 2009, change:
- their normal pattern of regular
pension contributions, or
- the normal way in which their
pension benefits are accrued, and
their total pension contributions or
benefits accrued exceed £20,000.
The amendments will permit taxpayers
who currently pay premiums of over £30,000
on an annual or irregular basis to benefit
from higher rate tax relief on
contributions of up to £30,000.
Andrew Hubbard, Chartered Institute of
Tax (CIOT) president, said:
“The CIOT highlighted the unfairness in
the original proposals, which favoured
those who paid, or whose employer paid,
regular monthly or quarterly pension
contributions, while disadvantaging those
who made less regular contributions.
The self-employed typically make annual
contributions only once their income for
the year has been determined.
We welcome the fact that the government
has listened to our concerns. We had hoped
that the changes would have gone further,
but we can appreciate that the current
adverse financial conditions have
necessitated some tough decisions.”
If you would like advice on pension
contributions please do get in touch.
Internet links:
CIOT article
HMRC Budget pensions changes |
