High Earner Pensions 2010

High Earner Pensions 2010

by Ashley Clark, Director - March 2010

Any year-end pensions tax planning will need to be made against the backdrop of the restrictions that are being made to the availability of higher rate tax relief on pension contributions for certain people.

The Government will be introducing a ´high income excess relief´ tax charge, which is designed to restrict the relief available on pension contributions/accrual in respect of high earners, with effect from 6 April 2011. A change was also implemented, with effect from 9 December 2009, to the anti-forestalling provisions designed to stop those individuals likely to be affected by the new rules from April 2011 maximising their contributions in the meantime.

Advisers will need to be familiar with the main aspects of these changes, both in terms of the proposed rules to apply from April 2011 and the action that should be taken now by high earners looking to maximise their pension provision. In particular, the following points should be considered:-

· Anyone with "relevant income" of below £130,000 in tax years 2009/10 and 2010/11 should seek to maximise their pension contributions while there is no restriction on their available tax relief. This is particularly important for anyone who is likely to fall foul of the income limits applicable from 6 April 2011.

· Anyone with "relevant income" of £130,000 or more but less than £150,000 should be made aware that they are now potentially subject to the special annual allowance and full advantage should be taken of their special annual allowance (ie. normally £20,000 but potentially up to £30,000 where "infrequent money purchase contributions" have been paid in tax years 2006/07 to 2008/09 inclusive) in both tax years 2009/10 and 2010/11.

· Anyone with "relevant income" of £150,000 or over should take full advantage of their special annual allowance (ie. normally £20,000 but potentially up to £30,000 where "infrequent money purchase contributions" have been paid in tax years 2006/07 to 2008/09 inclusive) in both tax years 2009/10 and 2010/11.