The Chancellor outlined measures to allow individuals to pass on their family home on death up to a value of £1m without suffering inheritance tax, but the funding for this has to come at a cost to those high earners planning for their retirements. Step in changes to pensions.
The measure restricts pension tax relief from 6 April 2016, by introducing a tapered reduction of the annual allowance (currently £40,000) for individuals with income over £150,000 (including pension contributions).
These provisions reduce the annual allowance by £1 for every £2 that an individual’s adjusted net income exceeds £150,000, up to a maximum reduction of £30,000.
It is still possible to carry forward unused annual allowances from the previous three tax years, but these will be based on the unused tapered annual allowance.
Legislation has been introduced to align pension input periods with the tax year to facilitate this taper. A pension input period is the 12 month period that measures your pension contributions but before the Budget it did not have to end on the 5 April. Therefore all pension input periods currently open are closed today, with the next input period running from 9 July 2015 to 5 April 2016, then following the tax year thereafter. This provides an opportunity to double the relief available in the current tax year.
Whilst we welcome the increased ability to pass down property through generations without suffering an inheritance tax burden, we are disappointed that this has come at the expense of those who have prudently provided for their own futures.
Finally, the Chancellor announced a consultation on a possible reform of pension tax relief. RSM will be responding to the consultation by the end of the summer and welcome any comments you may have.
There are significant tax planning opportunities to ensure you maximise the pension relief available before 6 April 2016. Please contact your usual RSM contact for further help. Alternatively if you would like any further information on this, please contact Mark Waddilove or Karen Clark.