Annual and Lifetime Allowance changes - Summer Budget 2015

Summer Budget 2015

There were a number of pension-related announcements in the Chancellor’s Summer Budget, given on 8th July 2015 and two important changes to pensions taxation are reported on below.

 

Lifetime Allowance

The Lifetime Allowance is the limit on the total value of pension benefits that an individual can build up over their working life without a tax charge.

The Government confirmed that the Lifetime Allowance will be reduced from £1.25 million to £1.0 million from 6th April 2016. From the start of the 2018/2019 tax year, the Lifetime Allowance will increase by Consumer Price Inflation each year.

There will be transitional protections available, namely Fixed Protection 2016 and Individual Protection 2016. Applications for Individual Protection 2014 can be made through to 5th April 2017.

More information on the Lifetime Allowance and protections available can be accessed through https://www.gov.uk/tax-on-your-private-pension/lifetime-allowance.

 

Annual Allowance

The Annual Allowance is the amount by which the value of an individual’s pension benefits can increase each year without incurring a tax liability.

Plans were announced to introduce a tapered Annual Allowance (TAA) to apply to high earners from 6th April 2016 and the alignment of all Pension Input Periods (PIPs) to the tax year from 6th April 2016.

To explain at a high level, there will be a restriction on the pensions tax relief available for individuals with an income of over £150,000. It will be delivered by a tapering off of the current Annual Allowance of £40,000 for those with incomes of £150,000 down to an Annual Allowance of £10,000 for those with incomes of above £210,000. The calculation of the income components to use, adds complexity to the process of assessing an individual’s exposure to the Annual Allowance and it is possible that individuals with income over £110,000 may be affected.

More information on the Annual Allowance can be accessed through https://www.gov.uk/tax-on-your-private-pension/annual-allowance.

For further reading on the Tapered Annual Allowance please refer to: https://www.gov.uk/government/publications/pensions-tapered-annual-allowance/pensions-tapered-annual-allowance. The changes are still subject to Royal Assent.

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