Pensions – tax changes for higher earners | Release Date Jan, 28 2010 |
The announcements in the December 2009 pre-budget statements on pensions has created an extraordinarily complicated situation and yet anyone affected needs to deal with their situation other wise they may be liable for a tax charge. | |
From April 2011, those earning more that £150,000 (and employer pension contributions will be added back to calculate this figure) will see a reduction in pensions tax relief from 50% (the new higher rate of income tax) to 20%. The rate will be tapered between £150,000 and £180,000 and the details of this are still subject to consultation. In order to prevent people from changing their arrangements ahead on this new regime, a series of anti-forestalling measures have been introduced which apply immediately and will run up to 5th April 2011. These will ensure that anyone with a "relevant income" of £130,000 or more (and there is a specific definition of what's included) who increases their pensions significantly will be liable for additional tax. There are provisions in place to protect some existing pension contributions and also a new special allowance of £20,000 to enable new payments to be made. In addition to the changes outlined above, there is also another tax hike for those earning over £100,000 through the removal of the nil rate tax band which is effective from 6th April 2010. This means that for every £2 of income over £100,000, £1 of your personal allowance is lost. This creates an effective tax rate of 60% on earnings between £100,000 and £113,000, made up of 40% income tax and 20% additional tax through the removal of your allowance. However, reducing pay back to below £100,000 through salary sacrifice with an associated pension contribution (or other non-taxable employee benefit) offers a way of avoiding this tax and also recovering employer and employee National Insurance. The challenge for any organisation offering pensions is whether to leave their higher earners to their own devices or try to provide some guidance and planning about what to do now. Redbourne, along with our tax advisory partners, provides a range of services as follows and we would be delighted to help you through the maze: · Salary sacrifice - advice and implementation · Pensions advice · Employee benefit design advice · Tax advice · On-line pensions and tax modelling For more information please contact: Richard Stewart richard.stewart@redbourne.com D +44 (0)20 8339 8822 Gillian Haworth gillian.haworth@redbourne.com D +44 (0)20 8339 8824 This article is based on our understanding of current HM Revenue practice which may change and is subject to further consultation. | |