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