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Pension tax allowance

The latest draft legislation has come out on pensions, which covers a few different areas, but I'll just talk about annual allowance here.

The proposal is to reduce the annual allowance from £255,000 down to £50,000. This is the maximum you can contribute during the tax year to a UK pension scheme and includes both individual and employer contributions.

We need to see the final legislation, but in principle there are two main areas of planning that are interesting: 

  1. For controlling directors who are not classed as high earners (£130,000+), there is an opportunity to make a final contribution of £255,000 from the employer. This is the last opportunity for this level of contribution, but should be considered against the backdrop of the lifetime allowance and existing provision.
  2. For those that are high earners and caught by anti forestalling, from 6 April 2011, you will be able to make a maximum contribution of £50,000 and gain tax relief at your highest marginal rate. There is the opportunity to carry forward unused allowances from the previous three years. If your earnings are to continue at a high level, there is a case for deferring individual pension contributions for this tax year and using carry forward to get 50% tax relief as opposed to 40%.

As always any kind of simplification results in more complexity - I ve not even started on final salary schemes - and generally as ever with pensions there is the need for good advice.

Anne McClean is a Chartered Financial Planner at Nightingale Associates. The views given in this blog are personal to the author.  If you would like to discuss the contents of this post with Anne you can call her on 020 7427 5860.

M&H LLP trading as Nightingale Associates is authorised and regulated by the Financial Services Authority.



Date: 22nd October, 2010
Author: Anne McClean


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