Insights

In part 4 of our special Summer Budget 2015 tax planning series, we highlight the new restrictions to tax relief on pensions. We blogged about the possibility of pension tax relief being announced just before the Budget, advising clients to consider bringing forward any future pension contributions if possible.

Currently pension contributions, although capped at an annual allowance of £40,000, attract income tax relief at the top rate of tax applying to the investor. Following the July 8^th Budget, this relief will be restricted with effect from 6^th April 2016 for those on higher incomes.

The restriction will be in the form of a tapered reduction in the amount of the annual allowance and the new rules have been designed to limit the scope for tax avoidance through salary sacrifice. Specifically, the restricted tax relief will apply to individuals who have an income, including the value of any pension contributions, of over £150,000 and who have an income (excluding pension contributions) of over £110,000.

This somewhat complex wording has apparently been put in place in order to prevent individuals from avoiding the restriction by sacrificing salary for employer pension contributions.

The restriction will work by gradually reducing the annual allowance of £40,000 by £1 for every additional £2 of income over £150,000 a year. There will however be a minimum allowance of £10,000 a year for everyone.

The long term cost of providing tax relief for pension savings is a major concern for the government; it has launched a consultation on ‘strengthening the incentive to save’ to address this.

We will be announcing any further updates as information becomes available.

Tax planning post Summer Budget

You can also read our other Summer Budget 2015 tax planning articles focusing on:

• Property tax changes
• Tax changes affecting business owners
• Dividend incomes and tax changes.

In the meantime, if you want to discuss any aspect of tax planning in relation to pension contributions in more detail please contact Lesley Stalker by emailing las@rjp.co.uk.