Having reduced the pensions lifetime allowance to £1m in last month’s budget (with effect from 6 April 2016), the Conservative manifesto includes a further planned change to the pensions rules.
The Conservatives are proposing a tapering away of the pensions annual allowance from £40,000 to £10,000 for additional rate taxpayers (those earning at least £150,000 a year). The pensions annual allowance is the maximum gross pension contribution that an individual can make per year, including contributions made by their employer. The annual allowance would be reduced by £50p for every £1 of income over £150,000 so that once income reaches £210,000 the annual allowance is reduced to £10,000.
For those drawing their remuneration from a company, if their individual total taxable income per tax year was no more than £150,000, then these proposed new rules would not impact on them, even if the company profits were much higher than £150,000 on a per owner basis.
Given that Labour has announced plans to limit tax relief on pension contributions to 20% for additional rate taxpayers, whatever the election result, it is looking increasingly likely that pensions tax relief will be restricted for this group of taxpayers in some form or other. Individuals who would be affected by the proposed restrictions may wish to consider maximising their pension contributions in advance of any changes being brought in. Any large pensions contributions should be made following consultation with your financial advisor to ensure, for example, that both your annual and lifetime pensions allowances have been considered.