Annual And Lifetime Allowances
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01/12/2019 COPYRIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS 12 14 21 9 11 14 8 9 14 4 01/03/2020 12 14 20 9 11 13 8 10 14 4 01/06/2020 10 12 17 8 9 12 6 8 11 4 01/09/2020 10 12 17 8 10 12 7 8 12 4 01/12/2020 10 11 17 8 10 12 7 8 12 4 01/03/2021 10 11 17 8 10 12 7 8 12 4 ANNUAL and LIFETIME ALLOWANCES Two controls limit the amount of tax relief available to an employee in respect of pension contributions. Since the 6th April 2014 this is restricted to an annual allowance of £40,000 which is the maximum increase in a fund in a pension input year. Employees attempting to circumvent the restriction by putting additional amounts into their pension fund ahead of tax year 2011/12 were subject to a special annual allowance charge of 20% for higher rate taxpayers or 30% for additional rate taxpayers where they paid more than £20,000 into their fund on an irregular basis (defined as less than quarterly contributions). In a final salary arrangement the increase in the fund at the start and end of the year is multiplied by a factor of 16. Unused annual allowance for three prior tax years can be used to offset any tax liability. Annual allowance charges of up to £2,000 are coded out automatically by HMRC. Charges above £2,000 can be paid directly or deducted from future benefits by the pension fund and paid to HMRC – this is known as ‘scheme pays’. From 6th April 2016 a tapered reduction in annual allowance applies to anyone with adjusted net taxable income of £150,000 or more. The adjustment will include adding back any pension contributions funded using a salary sacrifice arrangement. The taper will operate at a rate of £1 of the annual allowance for every £2 by which their earnings exceed £150,000. The maximum reduction to the annual allowance will be £30,000. At the same time a one-off annual allowance of £80,000 was applied to the 2015/16 tax year. No printing, copying or r production permitted. The threshold increased to £240,000, adjusted net income, from 6th April 2020 before the annual allowance is affected with a corresponding £4,000 minimum allowance to apply The annual allowance may also be reduced if the contributions to a scheme come from the proceeds of an existing scheme. From 6th April 2017 the annual allowance drops to £4,000 (£10,000 from April 2016) if contributions are made into a scheme that is already paying out an income. The reduction applies in the first full tax year after income is drawn. It can also apply if the scheme is used to make contributions into another scheme. The lifetime allowance, £1.0731m from April 2020 (£1.055m from April 2019 and previously £1.03m) governs the tax relief available on the total fund value for all pension arrangements.
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