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Key issues for financial planners
The effect on high-income individuals
The definition of a high-income individual depends on income during the applicable tax year and the two preceding tax years. Thus some individuals may currently earn below the relevant income limit and still qualify as a high-income individual.
There are two ‘populations’ of high earners. The budget speech of 22 April 2009 defined them as those with ‘relevant income of £150,000 or over (either in the 2009/10 tax year or either of the previous two tax years. The pre-budget report on 9 December 2009 added those earning £130,000 or over to those affected.
Protected pension input amounts (PPIAs)
Protected pension input amounts are regular payments that were paid at least quarterly prior to 22 April for those with relevant incomes of £150,000 or over (9 December if income is £130,000 or over). They provide protection against the special annual allowance charge for future regular payments up to the level that was previously being paid.
Initially, in order to qualify as PPIAs regular payments had to continue to be paid to the same scheme. Clients who switched providers or left an employer’s scheme would lose protection against the special annual allowance. However this was changed by The Special Annual Allowance Charge (Protected Pension Input Amounts) Order 2010. This allowed someone to leave one scheme and start another without losing the contribution history of the old scheme. Payments made under the new scheme can therefore continue as PPIAs.
Higher special annual allowance
Payments made less frequently than quarterly prior to 22 April/9 December to a money purchase scheme can lead to a higher special annual allowance. If the average of such payments made in the last three tax years exceed £20,000, this average will be the special annual allowance for the member. The amount is however capped at £30,000.
Contributions refund lumps sums (CRLS)
HMRC have added an additional authorised lump sum payment which may be paid by scheme administrators, the contributions refund lump sum.
What you can do for high-income clients
The main issue for most IFAs is what action they can take to help high-income clients now. We have created a short list of do's and don’ts based on our understanding of the rules as they stand at present.
Next page: The effect on high-income individuals
Note - The information provided is based on our current understanding of the 2009 Budget, the Pre-Budget Report 2009 and associated documents and may be subject to alteration as a result of changes in legislation or practice.
Published 12 January 2010
Updated 9 March 2010
