Points of View

John Gleadall - Senior Policy Manager, Wealth

05 June 2009

No Escape

Measures announced in the 2009 Budget intended to restrict tax relief on pension contributions for those with “high incomes” didn’t really come as much of a shock. Some sort of action had been heavily rumoured. I suppose we should be grateful that the measures were as selective as they turned out to be and will “only” affect under 300,000 people instead of all those of the 3.6m higher rate tax payers who were paying pension contributions - 2006/2007 HM Revenue & Customs projection (pdf - 20.5kb)

Just in case you’ve forgotten, the proposal is to withdraw higher rate relief from those with incomes of £150,000 or more. Interim arrangements apply for the tax years 2009/2010 and 2010/2011 which mean that those paying regular (that is, more frequently than quarterly) contributions on an agreed basis can carry on doing so and any high income individual can have pensions input of up to £20,000 in the tax year with no adverse consequences. Things will change in 2011 and all “high income” individuals will face clawback of tax relief on their own contributions and a tax charge on their employer’s contributions.

One of the key points is the definition of “high income” individual. It takes account of all income – employed, self employed, interest, dividends, rental income and taxable gains on company share schemes and options.

So the main messages are:

Make sure clients who might be affected by these changes know what their total income really is.

Make sure any “high income” clients have £20,000 pension input this tax year and next tax year while they can still get full tax relief.

The value of investments can fall as well as rise and is not guaranteed