pensions tax relief
Following the article in last November’s edition of Talking Tax ‘Pensions and the 2009 Budget’, the 2009 Pre-Budget Report announced even more restrictions to the new anti-forestalling rules.
Extension to incomes of £130,000 or over
From 9 December 2009 (the date of the Pre- Budget Report), the anti-forestalling measures applying to those with incomes of £150,000 have been extended to include those with incomes of £130,000 or more.
Clarification of the term ‘income’ for the £130,000 threshold
The Pre-Budget Report advised that the income definition for the £130,000 threshold includes the value of employer pension contributions. Apparently this had always been the case, but the previous wording had been ambiguous.
£130,000 ‘floor’
In conjunction with the threshold extension above, tax relief for those with incomes below
£130,000, before the inclusion of employer pension contributions, will not be restricted.
Restrictions from 6 April 2011
In the 2009 Budget, the Chancellor announced that he would be restricting tax relief for high earners for pension contributions. The new rules are due to come in from 6 April 2011 onwards. This is why the anti-forestalling rules were introduced to prevent high earners accelerating pension contributions now.
In the Pre-Budget Report, the Government launched a consultation on the introduction of the restrictions from 6 April 2011. The main proposals in the consultation are that:
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Those with gross incomes of £180,000 or more will have tax relief restricted to basic rate on all pension contributions.
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Those with gross incomes of between £150,000 and £180,000, will have tapered tax relief.
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The Government is consulting on the way the taper will work.
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The restrictions will apply to all contributions to money purchase pension schemes.
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For defined benefit pension schemes, the restriction will apply a ‘deemed’ contribution which will be calculated to reflect the value of the pension accrued. The Government is consulting on how the deemed contribution is to be calculated. The tax relief restriction will be recovered through the Self Assessment system.
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Those affected will be individuals with "gross taxable income" of at least £150,000 and "relevant taxable income"
of at least £130,000, where "gross taxable income" includes both personal and employer pension contributions and "relevant income" includes only individual contributions.
Action
If you think you will be affected by the current anti-forestalling rules or the restrictions being introduced on 6 April 2011, do contact us to discuss your options.