Complex rules which restrict tax relief on pension contributions, which came into effect in the 2016/17 tax year, could result in an unexpected tax bill.
Under the new rules, those with an income above £150,000 will have a smaller tax-free allowance for pension contributions.
So, what if my income is over £150,000?
The pension Annual Allowance refers to the amount you can put into your pension fund each year without incurring any tax.
Tapered Annual Allowance
If you have a total income (Including P11D benefits/dividend income etc.) and employer pension payments that come to more than £150,000, then you may have a reduced Annual Allowance.
The standard £40,000 Annual Allowance is reduced by £1 for every £2 of “Income” you have over £150,000 in a tax year until your allowance reaches £10,000.
|Total Income||Over £150,000 threshold||Formula||Tapered AA|
If you think that you are going to be affected by tapering then speak to your financial adviser.
Remember, you may be able to carry forward unused allowances from previous tax years if you are affected by the Tapered Annual Allowance.