High earners lose out on pension contributions
Under the present tax rules anyone making a pension contribution can get tax relief at their marginal rate. Further details are in Pensions: a 20% off sale!
In summary, if you are a basic rate tax payer and wanted to pay £100 into your pension plan your cash contribution would be £80. Your £20 tax credit would bring your contribution up to £100. For a 40% taxpayer your contribution would be £60 and for a 45% tax payer your contribution would be £55. The tax relief is available on contributions of up to £40,000 each year.
These reliefs are designed to encourage all of us to save more foryour retirement. The more you earn, the mor attractive the relief is to you.
However in the Summer Budget 2015 the Chancellor announce a change to these rules for those earning over £150,000.
From April 2016 the relief will be reduced at a rate of £1 for every £2 earned over £150,000, until the tax limit has reached £10,000.
The individual limits will be:
Earnings Pension tax allowance
Up to £150,000 £40,000
£160,000 £35,000
£170,000 £30,000
£180,000 £25,000
£190,000 £20,000
£200,000 £15,000
£210,000+ £10,000
Be aware the definition of “earnings” is broader than just salary. It also include a pension contribution made by your employer. So an individual earning £110,000 with a £40,000 contribution from their employer will also fall into the new rules.
Anyone with income excluding pension contribution below the £110,000 threshold will not be subject to this taper.
The new rules do not come in until April 2016. If you are a high earner there is a window of opportunity until then to maximise your pension contributions. Using the previous three years carry forward allowances you can make a total contribution of up to £180,000 in this tax year. This could be a useful planning strategy for anyone who has come into large amount of funds for example, through a bonus, sale of a business, or inheritance.
If you have a query on your pension and would like to discuss it, please call on 01932 698150.
photo credit:flickr/Simon cunningham
Read More
If you enjoyed this post, we recommend the following as additional reading.
What qualification should my financial adviser have?
In order to provide regulated financial advice in the UK, a financial adviser must hold an approved qualification covering a number of financial planning subjects. Qualifications are generally from two main professional bodies: Chartered Insurance Institute (CII) and Institute of Financial Planning (IFP). Advisers must hold a minimum qualification, subscribe to a code of ethics…
Why Wealthy Women Still Struggle With Money (And How to Overcome It)
I love this quote by Coco Chanel: “There are people who have money and people who are rich.” It perfectly captures what I see so often in my work: Abundance and wealth are about so much more than what’s in your bank account. Many of my clients are deemed wealthy by societal standards. On paper,…
Why So Many Wealthy Women Still Feel Anxious About Money……
✨ Release guilt, fear, and panic around money And What We Can Do About It Imagine if you had more money than you could ever spend. And yet, you still check your account every morning — just in case it’s all gone. Sounds unlikely? I’ve worked with financially successful women for over a decade —…