Tapered Annual Allowance

In April 2016 the Pension Contribution Annual Allowance for high earners is due to be reduced.

WHAT IS THE ANNUAL ALLOWANCE?

The Annual Allowance (AA) is a limit on the total amount of contributions that can be paid into a pension each year, which is currently £40,000. If this amount is exceeded, a tax charge is payable. It may be possible to use the previous 3 tax years’ unused allowances, this is known as ‘Carry Forward’.

WHO WILL BE AFFECTED?

Initially, the government announced that anyone with an “Adjusted Income” of over £150,000 would be affected.

However, this isn’t as black and white as it may seem. There are various allowances, reliefs and pension contributions to take into account, which could mean that somebody earning over £150,000 is not be affected but somebody earning below this figure could be.

As a rough rule of thumb if you are earning anywhere in the region of £100,000 you could be affected by these changes.

THE REDUCTION

For every £2 of Adjusted Income earned over £150,000, the Annual Allowance is reduced by £1. The maximum reduction is £30,000, therefore if you earn £210,000 or more you will have an AA of £10,000.

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CONCLUSION

The calculations required to work out if you are affected or not are rather complex, but help is at hand. Ovation are pension specialists so we are able to assist and advise you in what is a tricky area to navigate, therefore please don’t hesitate to give us a call on 0117 942 4333.

 

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