10 December 2009
In this year's Budget and Pre-Budget Report there were changes
made to pensions tax relief for high income individuals.
The Government's intention is to deliver a system of pension tax
relief that is fair and affordable. The recent introduction of the
additional rate of income tax at 50 per cent applying to
individuals on incomes of £150,000 and over would have
exacerbated this, as traditionally relief is given at the highest
rate available.
In order to address this situation the Government announced in
the April Budget that from April 2011 tax relief on pension
contributions would be restricted for those with incomes of
£150,000 and over. This restriction is to apply to all
contributions including those from employers.
To provide certainty for individuals around whether they are
affected, and also to reduce administrative burdens for schemes,
the Government is introducing a floor at £130,000 of pre-tax
income (including an individual's own pension contributions, and
charitable donations). Only individuals with incomes at or above
this level will need to establish the value of the pension benefit
funded by their employers.
A taper will apply for those on gross incomes between
£150,000 and £180,000, gradually reducing tax relief on
pension contributions until it is restricted to the basic rate,
i.e. 20 per cent.
Two further guidance notes have been published on this
subject:
PBR Note 18 - Pensions: Restricting Tax Relief for High-Income
Individuals (Anti-Forestalling)
PBR Note 19 - Pensions: Changes to Tax Rates for Special Charges
and the Special Annual Allowance Charge
A copy of these notes can be found here on the HMRC webpage:
http://www.hmrc.gov.uk/pbr2009/notes-pdf.htm
The Government has also launched a formal consultation on the
implementation of the restriction and welcomes responses from
interested stakeholders. The consultation, "Implementing the
restriction of pensions tax relief", will run for 12 weeks until
3rd March 2010. More details can be found on the HM Treasury
webpage here:
http://www.hm-treasury.gov.uk/prebud_pbr09_consult_pensions.htm
