Tapered pension tax relief for those with high income

For most taxpayers the maximum pension input annual allowance is currently £40,000.

However, from 2016/17 those taxpayers with ‘adjusted income’ over £150,000 and ‘threshold income’ over £110,000 receive a tapered annual allowance.  For those persons affected the allowance tapers by £1 for every £2 that their adjusted income exceeds £150,000 down to a minimum annual allowance of £10,000.

The calculations of ‘adjusted income’ and ‘threshold income’ are complicated and we can assist if you believe that this restriction applies. There are ways in which these figures can be reduced so as to minimize the effect of the restriction. 

You may have to pay tax if your pension savings are too high! 

If your pension savings are more than your annual allowance for the tax year, and you do not have unused annual allowances from the 3 previous tax years to cover the difference, you’ll have to pay tax on the excess.

You’ll get a statement from your pension provider telling you if you go above the annual allowance. If you’re in more than one pension scheme, ask each pension provider for statements. This will help you work out how much you’ve gone above the allowance.

There is a calculator on the HMRC website but we can of course help you check that you have not exceeded the limits.

As you can see from the above, the system is still extremely complicated and we are expecting yet further reforms in future Budgets. Nevertheless, saving in a pension is still very tax-efficient as for a higher rate taxpayer the net cost of saving £10,000 in a pension is currently £6,000.

We work closely with GreenStones Financial Services who are an experienced and knowledgeable team, here to advise you with tailored pension and investment advice.  If you would like further advice on your pension investments please give GreenStones Financial Services a call on 01733 371180.

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