Alliotts Chartered Accountants and Business Advisors - Legal Leader
May 2010   
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* * * Pensions Tax Relief Cut 2011: Making the Most of the Next 12 Months
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With April 2011's pensions tax relief cut looming, those affected will benefit from making the most of the next 12 months.

December's announcement of further changes to pensions tax relief demonstrated how firmly in the Treasury's sights this area of revenue has become. However, it was Alistair Darling's decision to include all individual and employer contributions in the threshold calculation that created a whole new band of high earners that will be affected.

Originally introduced in the Finance Act 2009, the new rules and their subsequent amendments have been met with much criticism, not simply from those now affected, but from commentators who believe - amongst other things - that this is one complication too far in an already over-complicated system.

The latest announcement focused on how all individual and employer contributions made into any registered pension scheme will now be included in the 'relevant income' calculation - whether they are made into a personal or company scheme. However, currently a 'floor' has been established whereby anyone earning below £130,000 is unaffected for the moment.

Therefore, if your total income from all relevant sources (including investments) exceeds £130,000, then tax relief on your pension contributions is restricted for the years 2009/10 and 2010/11, and will be cut to 20% from 6 April 2011. Individuals who are higher rate taxpayers will still be able to receive 40% income tax relief on contributions up to £20,000 for the 2009/10 and 2010/11 tax years. Those who can show that they made regular (at least quarterly) contributions into their schemes of more than £20,000 per annum prior to announcement of the new rules will still get relief on those payments in the two transitional years, whilst individuals who have made lump sum payments in the previous three years will receive relief on the average of those payments, capped at £30,000. And through a quirk in the harmonisation of the rules introduced in the Finance Act 2009, the available level of higher rate relief on contributions will actually increase from 40% to 50% for 2010/11.

Even if you are not yet affected by the new rules, you should bear them in mind and take maximum advantage of the tax relief that is currently available. Quite simply, if the Government is looking to further bolster the Exchequer, then the calculations could well be subject to further revisions. Alastair Darling may even lower his 'floor' further in the not too distant future.

David Snell is a tax specialist who advises a broad range of professionals on all aspects of taxation. To discuss the impact of the tax relief changes on your pension arrangements, please contact your usual Alliotts partner or telephone David on 01483 533119.

Email David Snell at david.snell@alliotts.com

Is Your Pension Performing?

AGB Financial Planning Limited provides a FREE pension review service. Their specialists will appraise your current pension arrangements and whether they are on target to achieve your future goals. At a time of great change in the pensions industry, when some of the largest providers are seriously underperforming, you should find out if your pension could be doing more to protect your future.

For further information, please contact Peter David on 01483 508580 or email peterd@agbfp.com
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* Colin Farmer * Nigel Armstrong * Richard Hopes * David Snell * Rosemary Mashford * Download pdf *
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Alliotts Chartered Accountants and Business Advisors,
Imperial House, 15 Kingsway, London, WC2B 6UN
Registered to carry on audit work by the Institute of Chartered Accountants in England and Wales and authorised and regulated by the Financial Services Authority for investment business.