Do you need to act before April tax changes hit your pension?
From April 2016, changes to the tax relief system come into force that will affect many people with high incomes.
How changes may affect you
The annual allowance, which is the amount you can save into your pension every year and receive tax relief on, will be reduced.
So if your income is over £110,000 you may see your annual pension allowance reduce on a sliding scale (known as the ‘annual allowance taper’). If you are affected, the amount you put into your pension which receives tax relief, will be lower than it is currently, so it is important that you seek advice from us about how to maximise your pension contributions now.
You are likely to be affected if your income exceeds £110,000, which could comprise your earnings and benefits from employment plus other income from sources such as, property, investments, dividends and your income and pension contributions from employers exceed £150,000.
The change to the ‘annual allowance taper’ will restrict pension contributions to between £40,000 and £10,000 per year. The restriction is capped at £10,000 for those with an overall income, including pension contributions, of £210,000 or more.
The intricacies of the new rules are complex so for more information see our white paper ‘Changes in pensions tax relief for higher earners from 6 April 2016’.
How we can help you
There are several potential solutions that we can discuss with you regarding:
- Utilising unused annual allowance from previous tax years, to initially minimise the impact of tapered annual allowance
- Comparing the overall benefit of exceeding the annual allowance and paying the additional tax charge with reducing pension contributions below the annual allowance
- Working with you to structure your pension benefits in the most tax efficient way
- Working with your employer to offer an alternative to pension contributions, whilst your employer remains compliant with auto enrolment legislation.
- Ensuring that you maximise the annual allowance available to you during 2015/16, which can be as high as £80,000, due to changes made during this year to Pension Input Periods in order to implement the tapered annual allowance by 6 April 2016.
Don’t delay – contact your Cullen Consultant now – ring 0161 975 6700.