In today’s pre-budget report, the Chancellor announced that the anti forestalling measures on tax relief to pension contributions for high earners (introduced at Budget 2009) will be extended to individuals with “relevant income” of £130,000 or more. The income threshold was previously set at £150,000 in April.
At the core of the anti-forestalling provisions is a special annual allowance set at £20,000 (or in certain circumstances where contributions have been paid less regularly than quarterly the limit may be increased to £30,000) and associated tax charge which has the effect of restricting tax relief on pension contributions to the basic rate of tax.
The change effectively means that anyone who earns above £130,000 and either they or their employer makes pension contributions above their normal ongoing regular pattern of pension savings will lose their higher rate tax relief on pension savings over £20,000 (or £30,000 if applicable) in any tax year. Industry experts believe that up to 150,000 additional people could be caught by the changes.
However, the extended anti forestalling provisions will only apply to contributions made after 9 December 2009 and will not apply to normal regular ongoing pension savings before that date whatever the value. But, the total value of non-regular contributions made between 6 April – 8 December 2009 will reduce the special allowance available for 2009-10.