Stand-out Q – pension tapered annual allowance…

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SAT, 24 MAR 2018

Our Technical Hub provides access to a wide range of pension tax and trust technical resources. Every now and then we post tweets covering stand out questions from our technical content and our answers in case others might also find them helpful. As Twitter’s character restrictions only allow for the bare bones of the Q&A we link to the details here, too.

Question:

My client’s net income is under £110k, will they be subject to the tapered annual allowance?

Answer:

The Finance (No. 2) Act 2015 introduced the tapered annual allowance for individuals with ‘adjusted income’ of over £150,000. The adjusted income definition adds back employer pension contributions, the aim of which is to stop individuals from avoiding the restriction by exchanging salary for employer contributions. For members of defined benefit or cash balance arrangements a value is assigned to the increase in their pension benefits to determine the pension input amount, and from this is deducted the contributions made by or on behalf of the member to the arrangement for the tax year to give the final figure for the employer’s contribution.

Individuals with a ‘threshold income’ of no more than £110,000 will not be subject to the tapered annual allowance. To negate the use of salary sacrifice arrangements as a means to reduce threshold income, anti-avoidance measures were introduced for any new arrangements entered into from 9 July 2015.

The rate of reduction in the annual allowance is £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000.

Where applicable, the amount of unused annual allowance available to carry forward for future years will be based on the unused tapered annual allowance.

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