Pensions -Update
February 1st, 2011
Major changes are being made to the tax regime for registered pension schemes. Firstly, the Government has now announced new rules that will apply to tax relief on contributions. Secondly, there are plans afoot to remove the need for an individual to annuitise his/her pension fund at age 77 at the latest or opt for alternatively secured pension (ASP ). At the time of writing the Government’s final proposals on this change had not been released. Without a doubt the changes that are most relevant to year-end planning are the ones relating to tax relief on pension contributions. The main changes that apply from 6 April 2011 are as follows:
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The high income excess relief charge (HIERC) legislation, due to take effect from 6 April 2011, will be repealed.
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The annual allowance (AA) will be reduced from £255,000 to £50,000.
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Where an individual exceeds the AA in a tax year, he may be able to avoid an annual allowance charge (AAC) by taking account of any unused AA in the three immediately preceding tax years, ie. a form of carry forward has been reborn.
For the purposes of calculating any unused AA in tax years 2008/09, 2009/10 and 2010/11, it will be assumed that the AA for those years was £50,000 (even though it ranged from £235,000 to £255,000). In addition, the amount of AA actually used in these earlier tax years will be based on the calculation rules applicable for 2011/12 onwards. This will mean that for a defined benefits member an inflation adjusted factor of 16:1 will be used for valuing the benefits rather than the current factor of 10:1. HMRC has confirmed that for a member to take advantage of carry forward of unused AA for a previous tax year he/she must have been a member of a registered scheme in that tax year. However, there is no requirement for any pension savings to have been made in that tax year. Carry forward from an earlier tax year can only also be used where it has not been exhausted in a subsequent tax year. For further information and advice, please contact Mark or Clare at GMP Independent Financial Advisers LLP on 0207 288 6400