High Rate Tax Payers Pensions

High Rate Tax Payers Pensions have long been mooted as a target for the chancellor. The Tory party plan to significantly change the huge benefits that high rate tax payers enjoy – currently high rate tax payers can get 80% relief on passing monies to their pensions. 40% relief from making contributions and 40% off of their Inheritance Tax bill !

According to Conservative party plans, the amounts that higher earners can contribute to pensions could drop significantly after the budget on 8th July. Therefore all high rate tax payers should pay as much as they can afford into their pensions before the post-election budget.

However, please remember that the current annual allowance has an upper limit of £40,000.

You can only pay more than this if you are able to carry forward relief from previous years.

In our opinion if you are aged over 55 and have a number of investments, or cash you can access without penalty, then you should contribute the maximum you possibly can into a pension NOW.

Summary of Carry Forward Rules

The annual allowance was set at £50,000 from 6 April 2011 to 5 April 2014 and will reduce to £40,000 from the 2014/15 tax year.

Carry forward allows an individual to carry forward unused allowance from the previous three tax years.

The assumed annual allowance for the previous three tax years is £50,000 up to and including 2013/14.

An individual first uses up their allowance in the current tax year and then from the previous three tax years in order of oldest tax year first.

An individual must have been a member of a registered pension scheme during those tax years.

The carry forward of unused allowance allows an individual to make contributions in excess of the £40,000 annual allowance limit.

The individual must have relevant earnings in the tax year in which the contribution is made at least to the size of proposed contribution in order to get tax relief on it.

The contribution can be made as an employer contribution (subject to the wholly & exclusively test) or as an employee contribution.

Any annual allowance charge will be on the individual, regardless of whether the contribution was made by the employer or the employee.

The carry forward rules will remain in place, with the limit remaining at £50,000 for the tax year, up to and including 2013/14. From the 2014/15 tax year onwards this reduces to £40,000.

For our free guide on pensions – click this link http://wgn.f95.myftpupload.com/resources/downloads/pensions-guide/

It’s worth restating that the carry forward rules and the flexibility of pension input periods can be utilised to maximise contributions before the 8th July. Details can be found in the Pensions Tax Manual.

Ray Best is a resilient Financial Planner with a unique approach to investment planning, his work ethic has propelled him from humble beginnings to be voted as a top UK Financial Planner by Vouched For (as published in the Sunday Times). These days he works with families with large investment portfolios or big inheritance tax liabilities, the first step, is to book a Discovery Meeting HERE.

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