The Budget has provided for some changes to tax relief on pension contributions.
The two tapered annual allowance thresholds will each be raised by £90,000 and the minimum tapered annual allowance will be decreased from £10,000 to £4,000 from 6 April 2020. From 2020 to 2021 and subsequent years the threshold income limit, the point at which an individual is assessed for the taper, will be £200,000, and the adjusted income limit, the point at which the annual allowance begins to reduce will be £240,000.
The tapering of the annual allowance operates by reducing the annual allowance by £1 for every £2 that adjusted income exceeds the adjusted income limit.
The effect of this, for somebody with an adjusted income limit of £210,000 for example, would be that their annual allowance for 2020/21 will remain at £40,000 as opposed to the £10,000 it will be during 2019/20.
By reducing the minimum tapered annual allowance to £4,000, those with an adjusted income limit of over £300,000 will be adversely affected under the new limits. Currently they would have an annual allowance of £10,000, but from 6 April 2020 this will reduce further, to as low as the new limit of £4,000.
In addition, the lifetime allowance for pensions is confirmed to increase to £1,073,100 with effect from 6 April 2020.
After much speculation over the future of tax relief on pension contributions, today’s announcement was a somewhat surprising relation of existing restrictions to tax relief on pension contributions.
It is perhaps timely though in view of the potential effect of Coronavirus on the NHS. Promoted by the Chancellor, rightly, as of benefit to many doctors as they face a potential need to recruit or indeed increase workloads.
However this extension of pension contribution tax relief extends across all taxpayers and is not limited to medical profession. It is a welcome opportunity for many of our clients to extend their pension provision in a tax efficient manner.