Mailings

Monday 21 December 2009

Pre-Budget Report 2009 - Further New Rules for Tax Relief on Penison Contributions

Following the Pre-Budget Report on the 9th December, HM Revenue & Customs has announced another change to the rules for tax relief on pension contributions, which take immediate effect..

The "Special Annual Allowance" will now apply to those with "relevant" income of £130,000 or more - a reduction from the figure of £150,000 introduced on the 22nd April. This will not affect clients with an income below £130,000.

If your clients’ income is £130,000 they will be affected in the following way:

Personal contributions:

• Higher rate tax relief will only be granted on contributions of up to £20,000.
• Amounts in excess of £20,000 will only benefit from basic rate tax relief.
• The normal Annual Allowance of 100% of earnings subject to a ceiling of £245,000 (£255,000 from 6th April 2010) continues to apply.

Company contributions:

• Corporation tax relief is obtained by a company via its accounting process in the usual way.
• For contributions in excess of £20,000, the individual will pay a Special Annual Allowance tax charge (currently 20%).
• The normal Annual Allowance continues to apply.

To calculate whether the £20,000 Special Annual Allowance has been exceeded, total contributions for each individual paid by themselves, from their employer and by any other parties are added together.

The method of calculating "relevant income" is the same as for the previous threshold of £150,000 and includes savings and investment income. An individual is affected by these new regulations where their income is £130,000 or more in any of the current tax year or previous two tax years.

The following exceptions apply:

• Contributions in excess of £20,000 made before the 9th December for those with income between £130,000 and £150,000.
• Protected pension inputs (i.e. ongoing regular contributions paid quarterly or more frequently) in excess of £20,000 which were already in payment before the regulations came into effect..
• Increased Special Annual Allowance of £30,000 for irregular pension contributions where the average contributions over the previous three years exceeded £20,000.

Due to the significance of these regulations we propose to send the attached letter to all clients who are not receiving full income drawdown from their pension arrangements with The IPS Partnership.

If you would not like us to write to your clients direct, please let us know by the 4th January 2010.

I would like to point out that the role IPS plays in claiming tax relief on pension contributions remains unchanged and the regulations do not require us to police these new rules. We will therefore continue to accept contributions in good faith and process them in the usual way.

If you have any queries on these issues, please speak to your usual contact.

The IPS Partnership