Pension Annual Allowance Charge

Pension Annual Allowance Charge

Are you in danger of falling foul of the Government’s Tapered Annual Allowance charge?  This can happen easily if you contribute to a pension.

The introduction of the Government’s Tapered Annual Allowance rules may have significant implications for high income individuals whose threshold income exceeds £110,000 and adjusted income exceeds £150,000.

We understand that the Government is looking further at pension allowances to fill the hole in the NHS; however, it is important to note that restrictions on pension contributions already apply. When the pension contributions, or the growth in a final salary scheme, exceed available allowances an Annual Allowance charge arises.  We have recently seen an increase in the number of individuals coming to us facing costly tax charges on excess contributions.

To put this into an example:

In 2017/18, Sam’s taxable income was £160,000; he and his employer each paid £15,000 into his company pension scheme; he also paid £5,000 gross into his personal pension scheme; he has no unused annual allowances from the previous three tax years.

Under the pension rules Sam has made an excess pension contribution of £15,000 into his pension.  As he has no unused allowance brought forward, Sam is required to pay tax on this excess amount at his top rate of tax.

Where the annual allowance charge is over £2,000, it may be possible to elect for the pension scheme to pay the liability.  However, it is better not to fall foul of these complicated rules.  If you think this may apply to you or if you or your employer contribute to a pension and you would like to learn more about this please contact Sandy Gaywood – sandy.gaywood@kilsbywilliams.com.

If you would like to learn more about this please contact Sandy Gaywood – sandy.gaywood@kilsbywilliams.com.