Annual allowance

By Tolley
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The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Annual allowance
  • Exemption from the annual allowance rules
  • Carry forward of unused annual allowance
  • The annual allowance and those who remain in capped drawdown
  • What does the taxpayer need to do?
  • Payment of the annual allowance charge from the member’s pension scheme

The annual allowance in relation to registered pension schemes is the maximum amount:

  • by which a member’s benefits can increase in a pension input period (PIP) (in respect of defined benefit schemes)
  • that can be contributed to pension arrangements in a PIP (for defined contribution or money purchase schemes)

See Example 1.

If the annual allowance is exceeded, there is a tax charge (the annual allowance charge) on the member. See Example 2.

The annual allowance covers all contributions whether made by the member or any other person, eg the member’s employer.

Following the Finance Act 2004 reforms, the annual allowance reached £255,000 in 2010/11. The annual allowance for 2011/12 to 2013/14 was £50,000. The annual allowance reduced to £40,000 from 2014/15, and has since remained at that level. Pension scheme administrators are required to provide a standard pension savings statement to a member if that member’s pension input amount exceeds the general untapered annual allowance of £40,000 (see below).

From 2016/17 onwards, pensions tax relief is restricted for those with ‘adjusted’ incomes (ie taxable earnings including any member and employer pension contributions but excluding charitable contributions) of above £150,000.

FA 2004, s 228ZA

More on Pension contributions: