Pension changes

Alexandra Docherty

Alexandra Docherty

Tax Partner

02 February 2016

From 6 April 2016, additional rate taxpayers with income in excess of £150,000 will have the pension annual allowance for the year restricted. The annual allowance will be reduced by £1 for every £2 of income over £150,000 to a minimum annual allowance of £10,000.

Individuals who are likely to face a restriction to the amount they can contribute going forward to their pension, may wish to consider maximising their level of pension contribution in the current year and alsoensure they have utilised any unused annual allowances from the previous three tax years.

Input Periods 

Due to changes to pension contributions for additional rate taxpayers, the rules on pension input periods for the annual allowance for pension contributions have been changed. All pension input periods are to be aligned with the tax year.

For the 2015/16 tax year only, for the purposes of pension contributions the tax year is split into two periods, therefore for some individuals they will be able to effectively double up on their pension contributions for the year and be able to make a pension contribution of £80,000 for the 2015/16 tax year and claim tax relief on these contributions. 

The rules regarding pension input periods are complex and professional advice should be sought prior to making such pension contributions.

Lifetime Allowance 

From 6 April 2016, the lifetime allowance for pension contributions that benefit from tax relief will decrease from £1.25m to £1m.

Budget 2016

With the Chancellor due to give his budget on 16 March 2016, rumours abound that the Chancellor may reduce the tax relief available for pension contributions made by higher and additional tax payers to a flat rate. Some suggest this flat rate could be in the region of 25%. For example an additional rate taxpayer who makes a pension contribution currently would bank tax relief of 45% in total, going forward this may be restricted to a flat rate of relief for all.  It is recommended that individuals review their pension position prior to 16 March 2016, as any potential changes to the tax relief available on personal pensions may take effect from this date rather than 6 April 2016.