Tax Relief Rules for High Earners

From April 6th 2011 the maximum contribution to pensions(the Annual Allowance) changed to £50,000 or 100% of earnings if less. However unlike the outgoing rules, the £50,000 is fully relievable against the pension holder's marginal tax rate regardless of earnings.

From April 2014 the limit drops to £40,000.


Q. Does this apply even if I am a 45% taxpayer?

A.  Yes

Q. What happened to the £130,000 earnings limit rule?

A. This ended when the new rule came in on April 6th 2011.

Q. Can I carry forward unused relief?

A. Yes, Carry Forward was re-introduced with the new rules. You can now use any unused relief for the previous 3 tax years.


Q. Will the maximum allowance go up with inflation?

A. No. It could be reviewed by the government at some point in the future. 


Q. How much fund can I accumulate?

A. For the 2013/14 tax year this figure (LTA)is £1.5 million.However this will fall to £1.25 million from April 2014.

The maximum contribution to pensions(the Annual Allowance) is fully relievable against the pension holder's marginal tax rate regardless of earnings.


Q. What if I am in a Defined Benefit Scheme?

A. The benefits will be calculated with a multiplier of 16 times after allowing for salary inflation linked to the CPI.


John is a member of a DB scheme and his scheme pension input period ends on 5

April each year. On 6 April 2011 he had an accrued pension entitlement of 30/60ths of

his then pensionable salary of £60,000 (ie £30,000). By 5 April 2012 his pension

entitlement had increased to 31/60ths of his increased pensionable salary of £65,000

(ie £33,583.33).

John’s pension input from his DB scheme for tax year 2011/12 is calculated as follows:

Opening value = 16 x £30,000 = £480,000

This must be increased by the percentage increase (3.1%) in the CPI in the 12 months

to September 2010 (ie the September immediately before the tax year 2011/12 to

which the pension input related).

Uprated opening value = £480,000 x 1.031 = £494,880

Closing value = 16 x £33,583.33 = £537,333

Pension input in 2011/12 = £537,333 - £494,880 = £ 42,453

If this were John's only pension input in 2011/12, there would be no annual

allowance charge (and he would have £7,547 of unused allowance to carry forward).



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