UK Budget – Summer 2015
Published: 10 Jul 2015
Following a year of significant activity for QROPS and UK Pensions, the Summer Budget earlier this week was relatively quiet in relation to Pensions.
There were however still some developments:
Pension tapered annual allowance:
Pensions tax relief will be restricted by the introduction of a tapered reduction in the amount of the annual allowance.
Under these new rules the normal £40,000 annual allowance will be reduced for those whose total income is above £150,000.
In working out whether income is above £150,000, clients will need to include the value of any pension contributions they make, any pension contributions made by their employer, and the increase in value of any Final Salary Scheme over the period of the tax year. This is called ‘adjusted income’.
For every £2 of total adjusted income over £150,000, the annual allowance will be reduced by £1. The maximum reduction is £30,000, leaving a potential new lower annual allowance of £10,000 for some. However, once an income is over £210,000, there is no further reduction.
If there are unused annual allowances from earlier years, these can be carried forward in the usual way and added to the new tapered annual allowance.
The taper is backdated to 6 April 2015 and in order to facilitate this new measure, legislation to align pension input periods with the current tax year will be enacted immediately.
The HMRC policy paper can be read by clicking here.
A HMRC memorandum clarified that death benefits received by nominated beneficiaries after the Member’s 75th birthday will only be charged at the recipient’s marginal rate, and not at the present rate of 45%. This will take effect from April 2016. This was expected, and is a positive development.
Pensions tax process moving in line with ISA:
A Green Paper announced by the Chancellor outlined a proposed reform of the UK pensions tax process that would put it on par with that of Individual Savings Accounts (ISA).
In line with an ISA, pension contributions would be made from taxed income but would be paid out tax-free. The Green Paper is under consultation presently, and could be key in paving the way to further ‘radical’ UK pension reforms.
For a full summary of the Summer Budget 2015 please click here.
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