CHANGES TO PENSION CONTRIBUTION RULES WELCOMED (22/11/10)

Like many areas of tax, there have been substantial changes to the rules regarding tax relief on pension contributions in recent years with new rules introduced by the-then Labour government being repealed by the coalition government.

However, the recent changes to the pension contribution rules have been broadly welcomed and are certainly far simpler than the previous rules.

The Labour government originally introduced proposed changes to the pension contribution rules in the December 2009 Pre-budget Report. These changes were intended to restrict the amount of higher rate tax relief on pensions available to high earners. The amount of tax relief given reduced to zero for those earning over £180,000.

The changes were intended to be introduced from April 2011 but the legislation also included highly complex ‘anti-forestalling measures’ intended to prevent taxpayers making large pension contributions before the changes came into effect.

The new rules announced in August by the coalition government are certainly simplified. Taxpayers can now make pension contributions up to the level of their income but with a maximum limit for obtaining higher rate tax relief of £50,000 each year.

The changes have been welcomed by advisers and Tom Saltmer from Burgess Hodgson says: “The simplification of these rules is good news for taxpayers and the £50,000 limit is reasonably generous – the one fly in the ointment is that the very complex anti-forestalling rules are still in place for the rest of this tax year.”

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