The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
For many years the UK has operated a system which encourages private pension provision through a system of tax reliefs.
The operation of the taxation system associated with pensions was radically reformed in the Finance Act 2004 which disposed of a complex system that had developed since the last occasion of radical reform in 1970. This basis was introduced in Finance Act 2004. The objective was one of simplification, but no one would now claim that the pensions taxation system in the UK is materially less complicated as compared to the preceding position.
The taxation life cycle of private pension arrangements can be divided into three stages. At each point there are tax implications for the member and, where applicable, the member’s employer.
Contributions: payments are made into a fund. These payments will be paid by the individual member and, in many cases, by their employer as well. If the scheme is funded by contributions from the employer only, it is known as a ‘non-contributory scheme’.
The UK system is based upon tax privileges, so contributions are tax allowable on the part of both the employer and the member as this supposedly gives an incentive to make adequate retirement provision. However, there are limits on the extent of tax privileged pension contributions based upon the annual allowance. There is also an overall limit on the extent of the tax privileged pension fund size which can be accumulated over a working lifetime.
Investment: the fund accumulates over time. This arises from the investment activities of those who manage the fund with income and (hopefully) capital gains being generated. If the pension scheme is a defined contribution (DC) scheme then the investment risk is entirely borne by the member. If the scheme is a defined benefit
Access this article and thousands of others like it free for 7 days with a trial of TolleyGuidance.
Read full article
Already a subscriber? Login