Tax relief on pension contributions
The Government is keen to encourage individuals to save for their retirement and tax relief for contributions to pension schemes is given at the individual’s marginal rate of Income Tax subject to the annual and lifetime allowances. The income and gains which arise as part of a pension scheme are generally exempt from Income Tax and CGT.
The lifetime allowance is the maximum amount of pension and/or lump sum that benefits from tax relief. The charge was introduced as part of the pension tax reforms (known as A-day) in April 2006. The changes introduced an overall cap on the amount of tax relief available for pensions. The current maximum lifetime allowance is £1.5 million and this will reduce to £1.25 million from 2014-15. A transitional 'fixed protection' regime will be introduced for those who believe they may be affected by the reduction in the lifetime allowance.
A consultation document has recently been published on the implications of the changes to the lifetime allowance. The consultation is open for comment until 2 September 2013. Readers whose tax relieved savings exceed £1.25m, or are close to the limit, should be aware of the transitional protection available.
Please call to arrange an appointment so we can fully discuss your options prior to the changes announced from April 2014 - please note that the changes include a reduction in the annual allowance for tax relief on pensions contributions from £50,000 to £40,000.