Summer Budget 2015 - Pension tax relief reduced for higher earners

The tax relief on pension contributions will be reduced for those with income in excess of £150,000 a year.

The current pension contribution allowance of £40,000 per annum will be reduced by £1 for every £2 of income in excess of £150,000 down to a minimum of £10,000 at £210,000 of income.

For example, an individual with income of £170,000 in 2016, would have the £40,000 annual allowance reduced to £30,000.

Also note that the pension lifetime allowance is due to be reduced from £1.25 million to £1 million from 6 April 2016. Transitional protection will be available for those with pension savings in excess of the new limit.

Note that lifetime allowance protection is entered in Voyant on the Taxes screen. 

 

How to allow contributions to exceed the annual allowance

Voyant normally restricts pension contributions to the annual allowance. 

Returning to our example, an individual with income of £170,000 in 2016, would have their £40,000 annual allowance reduced to £30,000.

Voyant would therefore normally restrict any planned personal contributions to this allowance of £30,000, even if contributions of £40,000 were scheduled. 

  

Note that the portion of the annual contribution funded through tax relief (together with any employer contributions) is shown in the chart details as "Unscheduled" contributions - i.e. contributions made with funds that are not out of pocket to your client.

The details panel shows that the client was allowed to contribute £24,000 out of income with 20% of the contribution provided through tax relief of £6,000, for a total contribution of £30,000. 

If you would prefer to switch off this restriction on contributions, allowing for additional personal or employer contributions above the annual allowance, go to the Pensions > Money Purchase screen.

 

Select the pension in the ledger to the right side of the screen. 

Expand Advanced Settings > Contributions

Untick "Limit contributions to allowance". 

Now return to the Let's See chart details for pensions in 2016. 

  

A contribution of £40,000 is now being made to the money purchase. However, even with the restriction on contributions removed, the tax relief on this contribution will still be limited to 20% of the reduced £30,000 allowance, which would be £6,000.

Again, the portion of the annual contribution funded through tax relief is shown in the chart details as "Unscheduled" contributions - i.e. contributions made with funds that are not out of pocket to your client. 

First Published 02 September 2015, Release 4.0.19

 

Related topics

Release Notes - Version 4.0.19 - 02 September 2015