Tax relief comments and advice
JULY 15TH, 2009 By DAVID
As a chartered financial planner at Xentum, I’m happy to give technical comment and advice on topical personal finance issues. It will give you chance to ask any questions you may have which I can respond back to.
In this year’s Budget, the Chancellor, Alistair Darling, announced radical changes to the tax relief available on pension savings for high earners. The Government has made this change because it is unhappy that 25% of all the money it spends on pensions tax relief goes to the top 1.5% of pension savers.
The Government intends from 6 April 2011 to restrict tax relief for individuals with an annual income of £150,000 or more. This restriction will apply to all pension schemes and to all contributions, including contributions made by an employer or a third party.
In anticipation of the new restriction, the Government is introducing new rules with effect from 22 April 2009 to restrict higher rate tax relief on pension contributions for individuals:
• Whose annual income (earnings, savings interest, dividends etc) is £150,000 or higher in any of the tax years from 2007/08 onwards,
• Who increase their normal ongoing regular pension savings, including those made by their employer, above their normal regular savings pattern and
• Whose total pension savings, including those made by their employer, exceed £20,000 (the special annual allowance).
The aim of this restriction is to prevent individuals gaining an advantage by increasing their pension savings in the interim period. Tax relief on additional pension savings above the special annual allowance or the normal ongoing regular pension savings will be subject to a special annual allowance charge. The aim of which is to effectively reduce the tax relief on the additional savings to the basic rate of tax only.
Whilst I can understand the Government’s concern that the current system of tax relief is skewed towards high earners, the current position is in no small part a direct result of the Government’s reform of pension legislation in 2006.
The proposed change in its current form will introduce unnecessary complexity to an already complex matter. I would have thought that a far simpler solution would have been to reduce the annual allowance (currently £245,000) to a more acceptable level, but I guess that would have been far too simple.
If you have any queries or questions I’d be happy to help.
Posted in: TAX Planning