Adviser > Technical Central > Information & guidance > Acts, Bills and Budgets > 2009 Budget and its effect on protecting existing payments
2009 Budget and its effect on protecting existing payments
Changes announced in the Chancellor’s budget speech normally apply from the following tax year, or once specific legislation has been introduced. The 2009 Budget differs because anti-forestalling legislation has been brought in which was effective immediately after (and in one instance before) the budget speech was finished.
Pre-22 April payments
Pre-22 April payments are not subject to the special annual allowance charge but do not provide protection for future payments unless the payments are also protected pension input amounts (PPIAs).
Example 1: A client made a contribution of £55,000 on 20 April 2009. This is received by the scheme at 10.00am on 22 April. This is not a pre-22 April payment as it was received too late. |
To qualify as a pre-22 April payment a single payment must have been received by the scheme by midnight on 21 April 2009, whether or not the scheme was already in place.
Some single payments will have been received by pension providers that will not qualify as pre-22 April payments and could therefore attract a special annual allowance charge (unless refunded) (1).
Regular payments may qualify as both pre-22 April payments and PPIAs.
Protection
In order to ensure existing savers are not retrospectively affected, measures have been put in place to ensure existing pension contributions are protected against the special annual allowance charge.
The protection falls into two parts:
1. protected pension input amounts (PPIAs)
2. increases to the special annual allowance.
Protected Pension Input Amounts
Protected pension input amounts (PPIAs) provide protection against the special annual allowance charge for future regular payments, up to the protected amount.
Example 2: A client submits an application to pay contributions of £500 per month on 20 April 2009. This is received by the scheme at 10.00am on 22 April. This is both a pre-22 April payment and a PPIA (because the contract is set up for regular premiums). |
To qualify as PPIAs existing regular payments must have been in place or an application form for regular payments must have been received by the provider by noon on 22 April 2009. It does not matter when the first payment is actually paid, it’s the contract that counts.
PPIAs only apply to regular payments which have been made, or contracted to be made, at least quarterly.
PPIAs may comprise payments made by employees, employers and third parties.
Example 3: A client has made a contribution of £25,000 on the 1st of January every year. These contributions would be pre-22 April payments but they do not qualify as PPIAs. If the client makes another single payment of £25,000 on 1 Jan 2010 this will attract a special annual allowance charge on the excess over £20,000. |
It is the amount that matters not who pays it. It is even possible to alter the balance of payments between different parties without attracting the tax charge so long as the overall payment amount is not increased.
Increases to the special annual allowance
Following a government amendment a pattern of single payments may also be protected. This is achieved by an increase in the special annual allowance for these individuals, up to a maximum amount of £30,000. The increased allowance is based on the average of payments made in the previous 3 tax years.
Example 4: Payment in 2006/07 = £20,000 Total annual payment over 3 years = £75,000 |
These payments do not constitute a PPIA. Where a client has made both regular payments and infrequent contributions protection is not based on total payments, but on the higher of the regular or single payments made (see example 8).
PPIAs and the special annual allowance
PPIAs do not sit on top of the special annual allowance but overlap with it.
If an individual has a PPIA of less than £20,000 then additional payments can be made free of the special annual allowance tax charge but only up to the balance between the PPIA and £20,000 (in other words if the total annual payment does not exceed £20,000).
If an individual has a PPIA of £20,000 or more it is not possible to make any payments above the PPIA without attracting the special annual allowance tax charge:
Example 5: A client has been making regular payments totalling £15,000 per annum. PPIA = £15,000 The client’s PPIA is less than the special annual allowance so higher rate tax relief is only available on payments up to £20,000. Example 6: A client has been making regular payments totalling £25,000 per annum. PPIA = £25,000 The client’s PPIA exceeds the special annual allowance so higher rate tax relief is available on payments up to £25,000. Example 7: Payment in 2006/07 = £2,000 per month plus £25,000 single payment Payment in 2007/08 = £2,000 per month plus £25,000 single payment Payment in 2008/09 = £2,000 per month plus £25,000 single payment PPIA = (£2,000 x 12) = £24,000 The special annual allowance is greater than the PPIA so higher rate tax relief is available on payments up to £25,000. Example 8: Payment in 2006/07 = £2,000 per month plus £35,000 single payment Payment in 2007/08 = £2,000 per month plus £40,000 single payment Payment in 2008/09 = £2,000 per month plus £45,000 single payment PPIA = (£2,000 x 12) = £24,000. The special annual allowance is greater than the PPIA so higher rate tax relief is available on payments up to £30,000 |
(1) Following industry feedback the Treasury has confirmed that it will consult on whether legislation should be amended to allow payments made by the client but not received on time by the administrator to be exempt from the special annual allowance charge.
Note - The information provided is based on our current understanding of the 2009 Budget and associated documents and may be subject to alteration as a result of changes in legislation or practice.
Published 22 May 2009
Updated 29 July 2009
