Finance Bill 2013 – Restriction of Pensions Tax Relief
The government has now published for consultation draft legislation to implement the changes to pensions tax relief announced by the Chancellor in his autumn statement on 5 December 2012.
This includes a reduction, from the tax year 2014/15, in both the annual allowance (the maximum pension saving each year that will receive tax relief) from £50,000 to £40,000, and the lifetime allowance (the maximum pension saving an individual can have over their lifetime that can receive tax relief) from £1.5 million to £1.25 million.
This follows the reductions made to both the annual allowance and lifetime allowance for the current tax year, but the carry-forward rules remain unchanged, so that an individual can carry forward unused allowances up to £50,000 for the tax years 2011/12 through 2013/4, and £40,000 for the tax years thereafter.
The draft legislation also includes a new Fixed Protection 2014 option to enable certain individuals who currently have no other protection to apply to underpin their lifetime allowance at £1.5 million - so long as no further pension accrual is made. The government also proposed a personalised protection regime for individuals whose pensions savings exceed £1.25 million on 5 April 2014 (and would enable those individuals to continue to build up pensions savings whilst still benefitting from the protection), and it intends to consult further on this.
These further reductions mean that more pension savers will be caught and may therefore be worse off; there will also be further administrative costs for schemes in communicating with members and dealing with the changes.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.