Tax Relief for Pension Contributions

Major changes were announced to tax relief on pension contributions for those individuals earning more than £150,000. Higher rate relief will no longer be given in full to them, and the relief will taper until those earning over £180,000 will only receive tax relief at basic rate.

Although this change does not come into effect until 6 April 2011, “anti-forestalling” provisions are effective to prevent large contributions being made by those who currently earn more than £130,000 in 2009/10 and 2010/11 in anticipation of the withdrawal of relief. Relief at higher rate for those individuals will only be given on total contributions not exceeding £20,000 or where there were arrangements in place prior to 22 April 2009 which are paid quarterly or more frequently and the rate of those contributions is not increased. There are also measures to collect tax via self assessment where companies increase contributions for such earners.

The legislation in this area is fairly complex and if this is likely to affect you we recommend that you speak to your usual Clark Brownscombe contact. Although the current proposals specifically affect those falling into the 50% tax band, those whose earnings fall above the basic rate band but below £150,000 should not relax – within the small print of the notes was indication that relief in respect of all contributions might be restricted to basic rate with effect for 2013/14.