October 14th 2010 4:27 pm
From April 2011, the annual allowance for tax relief on pensions is to be slashed from £255,000 to £50,000. Lifetime pensio ...
From April 2011, the annual allowance for tax relief on pensions is to be slashed from £255,000 to £50,000. Lifetime pension savings receiving relief are to be reduced from £1.8m to £1.5m also.
An individual can save as much they like, if you are earning £75k you can put £75k into your pension if you so wish, however, rather than saving tax free for the entire £75k of earnings, you will now still have to pay tax on the £25k exceeding the £50k limit.
This would mean pensions contributions paid via Occupational, Private or Salary Sacrifice schemes which exceed the limit would possibly be effected as detailed below.
Occupation schemes normally have the pension contribution deducted from gross income before the tax calculated (although national insurance is still payable). If your deduction exceeds the £50k limit, amounts over £50k would give rise to a tax bill.
Private pension schemes normally have the pension contribution deducted from gross pay, with tax due being recalculated at the basic rate band to take into account the pension contribution. This adjustment would be capped. Higher rate taxpayers would not be able to claim extra relief on contributions over £50k.
Salary Sacrifice schemes would involve the employer deducting the pension contribution from the salary in the employee's contract. The employee's income would not be effected nor would the pension as no relief can be claimed - the employee's tax due, employee ni and employer ni are all reduced by declaring a lower salary.