Adviser > News > February 2010 > Call to action for high earners with pensions
Call to action for high earners with pensions
Higher rate tax relief for high income individuals will be restricted after 6 April 2011. Find out what you can and cannot do to help your affected clients.
As the 2009 tax year end approaches, we are receiving more queries about the proposed restriction of higher rate tax relief for high income individuals from 6 April 2011 and what the current restrictions are.
Opportunities for clients
There is an opportunity to maximise higher rate tax relief by making contributions before the changes come into force.
In depth
For those who don't enjoy reading HMRC guidance, read our plain English explanation on:
Yes anti-forestalling legislation applies but there is scope for these clients to contribute up to £20,000 in this tax year and the next one and still receive higher tax relief.
The legal requirements and changes
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High income individuals are now defined as those with income over £130,0001. Higher rate tax payers who earn less than this will continue to receive tax relief as before.
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Pension contributions may be used to reduce income below £130,0002.
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A special annual allowance (SAA) has been set at £20,000, which means contributions up to this amount will not attract the extra tax charge under anti-forestalling legislation (called the special annual allowance tax charge).
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Individuals with an existing pattern of single contributions may have a SAA of up to £30,000.
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Individuals who've made regular contributions may continue to contribute up to the existing level of premiums without attracting an extra tax charge, even where this amount exceeds the SAA, providing the contributions are made to their existing pension contract3. (However, this is offset against the SAA so you don't get the benefit of both).
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Individuals earning over £100,000 will have their personal allowance reduced from 6 April 2010. A pension contribution may also be used to avoid this.
How to help your affected clients
You may not have many high income clients, but any that you do have are likely to be your best clients. You should:
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Contact any clients who qualify as high income individuals and suggest a review of their pension contributions.
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Advise those who can afford to do so to make a contribution up to the level of the SAA before 6 April.
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Advise those with existing regular contributions to maintain their current level of saving until April 2011.
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Advise clients with earnings between £130,000 and £100,000 to consider a pension contribution in order to protect their personal allowance.
Note:
- Altered from £150,000 in the pre-budget report on 9 Dec 2009.
- Employer contributions do not have this effect.
- HMRC have advised they are prepared to review this condition but there has been no change as yet.
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.
For professional advisers only
