New pension tax relief rules - Warning

What is the issue with new pension tax relief rules?

Pension allowances and reliefs have been under sustained attack from HM Revenue & Customs in recent years.  Up until 2011 an individual could make annual contributions to their pension of up to £255,000 and get tax relief on the lot.  This figure, however, came down to £50,000 from 6 April 2011 and then to £40,000 from 6 April 2014. The icing on the cake was the introduction of the tapered allowance rules which took effect from 6 April 2016 and dropped the annual allowance to just £10,000 for certain high earners. The tapered allowance rules are complex and it is clear that there are many individuals and employers do not understand how they work and it is not uncommon for the rules to be overlooked completely with adverse consequences.  

What do new pension tax relief rules mean for me?

The tapered allowance works by reducing an individual’s annual allowance (currently £40,000) by £1 for every £2 of income they have over £150,000 up to a maximum reduction is £30,000. This may sound straightforward but in order to perform the calculation it is necessary to understand the definition of income which is not just salary or self-employment profits. The person will also need to know what their total income will be for the tax year which is not always easy if their income fluctuates from year to year eg if they receive bonuses. If a person exceeds their annual allowance they must pay income tax on the excess and if the tapered rules are not applied correctly, or are overlooked, HMRC may charge penalties.

What can I do - how haines watts can help you with new pension tax relief rules?

Haines Watts can provide you with general advice on the new pension tax relief rules, how the annual allowance and tapered allowance rules operate. However you should contact a Haines Watts Grimsby advisor to help plan your future pension contributions and to obtain advice on alternative tax efficient investments if you are unclear on the topic.