The July Budget - Pension Freedoms followed by belt tightening
From April this year we saw the introduction of the new Pensions Freedom legislation. These changes for pensions went further than most people had expected, and provided further real attractions to investing for your retirement through a pension plan.
Tax relief on contributions has always been the single biggest attraction for pensions, and its removal has been a topic of conversation ahead of any Budget in recent years. Not surprisingly the Chancellor announced in his July Budget to restrict tax relief for high earners. High earners being defined as those with adjusted taxable income of £150,000 or more.
These changes will not take effect until the new tax year 2016/17, and as such do represent an opportunity for high earners to take advantage of the current rules.
Under the existing legislation everyone has a £40,000 annual pension allowance. On the basis you have taxable income at this level or above, you are entitled to full tax relief on contributions.
From 2016/17 people with adjusted income in excess of £150,000 will have a tapering allowance such that those with income levels above £165,000 will have a reduced annual pension allowance of £10,000 to which tax relief can be gained.
Is this a buy while stocks last scenario?
For high earners that have the capacity to fund their pensions at the higher level and above, the announcements do provide a window of opportunity.
In addition, there is a facility to carry forward any unused relief from the three previous tax years.
If you feel you may be caught by this new cap, and would like to explore the options for making large pension contributions in this tax year please contact us on 01273 208813 and speak to one of our advisers.
For a detailed summary of the pension budget, please follow this link.