Posts tagged carry forward
The new Tapered Annual Allowance rules
The new Tapered Annual Allowance rules
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For those who may well have missed the details of the budget, as COVID has usurped all other news.  We have been writing this piece annually and this year is no exception, with significant changes to add further complexity to pensions in the Chancellor’s Spring budget. 

Between 2010 and 2011, the pension annual allowance fell from £255,000 to £50,000 and then dropped to £40,000 in April 2014.  The tapered annual allowance rules kicked in on 6th April 2016, when those with taxable earnings over £210,000 per annum were limited to pension contributions of £10,000 gross each tax year.

However, one of the groups that was most effected by the taper was the NHS. This has resulted in some doctors receiving high tax bills or seeing their future pension benefits reduced, making many reluctant to take on additional overtime.  To counter this in the Budget the Chancellor announced the following changes:

  • The two tapered annual allowance thresholds (threshold and adjusted) have each been raised by £90,000. 

  • Under the budget changes, for those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 for anyone with earnings of £312,000 or more.

The table below shows the new Tapered Annual Allowance (TAA).

table 1.PNG

The good news is that there is still one relief in place to help those affected by TAA, this is known as carry forward.

The table below shows how a high earner who has been paying £10,000 a year into their pension and the carry forward available to them in 2020/21.

table 2.PNG

  • Make sure you avoid an annual allowance tax charge by reducing your monthly pension contributions.  If like many, you were previously making monthly pension contributions of £667 (net) to cover your £10,000 annual allowance (gross) - be careful if your adjusted income in now in excess of £300,000 as the taper reduces even further to just £4,000 per annum for incomes of £312,000 or more.

If you would like to discuss pension contributions and retirement plans, in light of these changes, please contact us.  We are here to help you get the most out of your pension and find alternatives for retirement savings if necessary.

William Buckley

Financial Planner

will@ifamax.com

Risk warning: This does not constitute financial advice.  The value of your investment and any income from it can go down as well as up and you may not get back the original amount invested. Past performance is not necessarily a guide to the future. If you are in any doubt you should seek financial advice.                                                 

Ashton ChritchlowIfamax Wealth Managementtapered annual allowance, pension, budget, pension contribution, carry forward