High earners wishing to make pensions contributions will welcome the announcement of an increase in the income thresholds above which the tapered annual allowance applies.
Currently the standard annual allowance, on which full tax relief is available, is £40,000, but for individuals with adjusted income over £150,000, this allowance is reduced by £1 for every £2 of adjusted income above that threshold. The minimum reduced annual allowance is £10,000. Contributions or accrued benefits (for a defined benefit scheme) in excess of this annual allowance will incur a tax charge for the individual.
With effect for the tax year 2020/21, the adjusted income amount, above which tapering applies, will increase to £240,000. However, for individuals with income over this amount, the minimum tapered annual allowance will decrease from £10,000 to £4,000. This will mean a reduced rate of pension tax relief being available from 6 April 2020 for those with income over £300,000.
The announcement comes after a review of the tapered annual allowance, following concerns about its effect on the ability of the NHS to retain senior doctors and staff. Due to the way the NHS pension scheme operates senior doctors often find that their pension pot has grown beyond the tapered annual allowance, leaving them with an annual allowance tax charge.
The changes apply to pension contributions and benefits accrued from 6 April 2020 and will benefit many high earners.
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