Tax Relief restricted on Pension Contributions for high earners

From 6^th April 2010 tax relief on pension contributions will be restricted for people with taxable income of £150,000 or more. These high earners will suffer restrictions on their pension contributions until they eventually only receive 20% tax relief in the same way basic rate taxpayers do.

An individual receives relief at their marginal income tax rate on their pension savings. Relief for these high earners could be at 20% from 2010 instead of their new marginal rate of 50%. Broadly for every £100 pension contribution from April 2010 it will cost the higher earner £80 rather than £60, as is currently the case.

Although there are no limits to how much can be saved in registered pension schemes, the maximum tax relief available in any one year for pension contributions is limited to 100% of a person's earnings and by what is called the "annual allowance". One option may be to make substantial pension contributions in the current tax year when 40% tax relief is possible.

Before you rush out and make such substantial payments into your pension, hold on. The Budget includes rules to catch any payments in excess of £20,000 in a year that are not the usual level of contributions that you pay. It is difficult to see how these rules are going to work this year, let alone avoid catching innocent individuals who had already planned to make substantial contributions this year that are not part of a normal pattern.

We can help

Despite statements about simplifying the UK tax system, the truth is that it gets increasingly complex each year. But we can help.

We can guide you through the complexities of the legislation and help you to pay much less tax.

So if you would like to discuss ways in which we can help you to make tax savings, or if you would like to discuss any of the issued identified in this edition of “PayLessTax” please do not hesitate to contact us.