Pensions annual and lifetime allowances updates
The income and gains which arise as part of a pension scheme are generally exempt from Income Tax and Capital Gains Tax. Over recent years, both the annual and lifetime allowances have been gradually reduced removing some of the tax relief available to high earners.
The lifetime allowance is the maximum amount of pension and/or lump sum that benefits from tax relief. The lifetime allowance was reduced to £1m from £1.25m with effect from 6 April 2016.
The annual allowance for tax relief on pensions is currently £40,000 and there is 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.
In April 2016, the annual allowance was reduced for high earners. Those with income in excess of £150,000 will see their allowance tapered. For every complete £2 their income exceeds £150,000 the annual allowance will be reduced by £1, up to a maximum reduction of £30,000 for individuals whose income is over £210,000. Where an individual’s taxable income is no more than £110,000 (known as ‘threshold income’) they will not be subject to the tapered annual allowance. New guidance on calculating the tapered annual allowance has been published by HMRC.