At the last budget changes were made to pensions which became effective on 22 April 2009 and which will be factored in over the next couple of years. In essence, the Government has announced that it is introducing a 50% tax rate for those with taxable earnings in excess of £150,000 with effect from 6 April 2010. It has also introduced “anti forestalling legislation” which will restrict higher rate tax relief on pension contributions for individuals with an annual income of £130,000 or more. In anticipation of this change, there is a special annual allowance and associated tax charge from 2009-2010 that applies in respect of individuals who bring forward their pension contributions or otherwise make new or additional pension saving ahead of 6 April 2011.
If your annual income (including investment income, interest and dividends) is in excess of £150,000 these limits will apply to you.
The rules for high earners in relation to pension contributions has changed. For the period from 22 April 2009 to 5 April 2010, and for the 2010/11 tax year, high income individuals have a ‘special annual allowance’ for pension payments of the highest of:
1. A basic allowance of £20,000; or
2. An enhanced allowance of up to £30,000; or
3. Your ‘protected pension input amount’.
The enhanced allowance of up to £30,000 will apply only where contributions have been paid by (or on behalf of an individual) less often than quarterly (example single contributions). It is based on the lower of (a) the average of these infrequent contributions in the three tax years 2006/07, 2007/08 and 2008/09 and £30,000. If you have made no single contributions to your pension arrangements over these three tax years – Option 2 is discounted.
The ‘protected pension input amount’ is based on your normal amount of regular pension provision prior to April 2009.
Any contributions above your special annual allowance will result in a ‘special annual allowance tax charge’.
The tax charge for the current year is 20%, i.e. the difference between the higher rate and the basic rate of income tax, increasing to 30% the year after.
