Pre-Budget Report – Pension Changes
Changes have been announced that will affect the tax charge on short service lump sum refunds and Employer-Financed Retirement Benefits Schemes (EFRBS) payments other than to individuals.
HMRC are also amending the special annual allowance charge with effect from 6 April 2010. This is part of the anti-forestalling provisions announced during the last Budget related to the new restrictions that will apply from April 2010. Tax relief on all pension contributions, including employers’ contributions, will be restricted on a tapered basis for those with annual total incomes of £150,000 or more.
The rate of the special annual allowance charge was initially set at 20%. This is to be revised so that from 6 April 2010 the special annual allowance charge will be set at the ‘appropriate rate’. The ‘appropriate rate’ is determined by the rate of tax relief given on the amount of the pension contributions which exceeds the individual’s special annual allowance and will restrict tax relief on that excess to the basic rate of income tax.