Pensions – act now to secure tax relief

Pensions – act now to secure tax relief

It is arguably more important than ever to maximise the available tax relief on pension contributions. However planning is complicated by further restrictions to the amount of the Annual Allowance, Lifetime Allowance and the government consultation on whether there is a case for reforming pension’s tax relief.

Annual Allowance

The current £40,000 Annual Allowance is the maximum tax relievable contribution an individual can make to a UK registered pension scheme.

From 6 April 2016 the government will taper the Annual Allowance for anyone whose total “adjusted income” exceeds £150,000 a year down to a maximum of £10,000. This includes personal and employer pension contributions.

Individuals will though still be able to make use of rules which allow you to “carry forward” any unused annual allowance from the previous three tax years.

Individuals who think their total adjusted income will exceed £150,000, for the tax year 2016/2017 and beyond, should work with their professional advisors as soon as possible to assess their income and so in turn their personal Annual Allowance.

Lifetime Allowance

George Osbourne also confirmed changes to the Lifetime Allowance; reducing from £1.25m to £1m from 6 April 2016.

The significance of the Lifetime Allowance is that if the value of total accrued pension benefits exceed the limit, when benefits are taken, there is a tax charge of up to 55% of the excess.

Individuals will potentially be able to claim some form of protection with HMRC to mitigate against the penal tax charges at the time benefits are taken. However a qualifying condition of Fixed Protection 2016 is that no further contributions are paid and all benefit accrual ceases. This does mean that individuals should work with their professional advisors to calculate the value of their accrued pension value, and decide whether any protection is required noting future pension savings must stop from 6 April 2016.

Planning Points

When structuring your financial affairs you should seek independent legal and financial planning advice. If you would like to discuss your options in more detail, please contact OCM Wealth Management on 01604 621 467.

 

Frances Noons,

Wealth Manager.