Pensions

Types

• occupational - setup by ER (gross salary deduction). Defined benefit (based on EE earnings), or defined contribution (based on amount of contribution)

• Personal schemes setup by anyone- self employed, unemployed etc(same tax treatment as gift aid- extend BRB / HRB). Defined contribution scheme- get what you put in

Employer contributions

• tax free benefit

• Not limited but will eat into AA of 40k

Employee contributions

Maximum Gross tax relievable contributions made by individual is higher of

• £3600 (in rates and tables)

• Persons relevant earnings chargeable to income tax in that year (usually employment + trading income + FHL income)

• If contributions are made out of capital (ie net pay) no tax relief, does not eat into AA but will affect value of fund for Lifetime Allowance

• Persons under 75 years can made tax relievable pension contributions

• Contributions to personal schemes deemed as made at 80%. Need to then gross up and add to BRB if HR taxpayer (and HRB if additional rate taxpayer)

Annual Allowance

£40k Gross (EE gross + ER)

If AA not used up can cf up to 3 years as long as person is a member of a pension scheme in year the allowance relates to

CY allowance used first then oldest of the years BF (FIFO)

Tapering AA

• adjusted income in excess of £240k have reduced allowance

• Reduced by £1 for every £2 that ANI exceeds £240k

• Minimum allowance £4000

• Min allow = ANI of 312k or more

• Annual allowance chg = excess of 40k (or tapered allowance) taxed at individuals marginal rate

Receiving benefits from pensions

• flexibility with personal schemes once 55 years old

• Withdraw 25% tax free lump sum

• Balance of fund can be reinvested

• Income drawn from the balance is taxed as NSI

• Lifetime allowance applies to total value of pension fund

• Discourage extremely high earners from investing

• Income tax charge on withdrawal of fund exceeds lifetime allowance