by Don Wernham Simple Solutions
More employees could be hard hit by both the intended and ‘unintended consequences’ of lifetime allowance and tapering changes coming into effect this April. And it is not just ‘high earners’ that need take note.
Radical changes to pension schemes being introduced by government from 6 April 2016 could leave high earners with unexpected and unwanted tax bills of thousands of pounds. From 6 April 2016, the annual allowance will be tapered from £40,000 for those with earnings of £150,000 or more down to £10,000 for those with income of £210,000 or more.
Income will no longer just be comprised of someone’s salary, it is ‘adjusted’ to include employer pension contributions or any other income including savings, bonuses or even an individual’s buy-to-let property rental income which could easily take many more people into a higher earnings bracket. The annual allowance will reduce by £1 for each £2 of adjusted earnings above £150,000 until it reaches £10,000.
Many individuals and employers aren’t aware of the impact of the tapering of annual relief. If employees earning £150,000 or more don’t reduce their pension contributions from 6 April, they will be taxed at 45% on any excess and could face a surprise tax bill of £13,500 when they submit their tax return. This bill will be due for payment to HMRC by the 31 January following the end of the tax year.
Why is this happening? It’s all political, and part of the Chancellors cuts and squeezing more money out of us for the Treasury. And after the Conservatives landmark victory at the polls in May last year, better to get the bad news out of the way, early in the new Parliament.
What do you need to do? Take tax advice in the first instance to see the extent of the potential financial damage. Once we know this there are a few options open to you, and we are happy to discuss these options with you.
Disclaimer – Please note views are my own and do not constitute advice
