Pensions – Annual and Lifetime Allowances
Another forthcoming tax development that preceded the Chancellor’s Spending Review concerns pension contributions.
New draft legislation has been published following the Government’s earlier announcement of changes to the annual allowance for tax relief on pensions. This will come into effect on 6 April 2011. Changes to the lifetime allowance have also been announced which are expected to come into effect from 6 April 2012.
The Government has now confirmed, subject to the legislation being enacted, that the amount of the annual allowance will reduce to £50,000 from April 2011. The lifetime allowance, currently £1.8 million, will be reduced to £1.5 million from April 2012. HMRC will publish further guidance on this change in the future.
The following changes have also been announced:
- The method of calculating the amount of pension saving for a defined benefits or cash balance arrangement has changed.
- There will be a three year carry forward rule that allows taxpayers to carry forward unused annual allowance from the last three tax years if they have made pension savings in those years.
- There will be no blanket exemption from the annual allowance in the year benefits are taken. There will however be an exemption in the case of serious ill health as well as death.
- From 6 April 2011 the exemption from the annual allowance for taxpayers with enhanced protection will no longer apply.
- The special annual allowance rules introduced in Finance Act 2009 will be repealed.