Pensions in the Pre Budget Report 2009

Pensions in the Pre Budget Report December 2009

by Ashley Clark, Director

Previous Budget - The previous April 2009 Budget confirmed the highest rate of income tax would increase to 50% from April 2010 and that from April 2011, individuals with gross income of £150,000 or more will have their tax relief restricted when making a pension contribution on a sliding scale down to 20%.

There were also  measures introduced on that Budget day on 22 April 2009 that started with immediate effect.  These were designed  to prevent higher earners making bigger contributions today to claim 40% tax relief.  These are known as ‘Anti-forestalling’ measures.

'Anti-forestalling' means that you can contribute into pensions this year and claim normal tax relief provided based upon contributions you paid last year or £20,000 if greater and claim tax relief at the highest rate. However, if you are thinking of making a huge contribution this year to claim tax relief of £40,000 because next year you may be caught by the sliding scale down to 20% relief you will not be able to as you will have a ceiling contribution limit of £20,000.

Pension Added to Salary

The contribution is also included in your income calculation to be able to claim 40% high rate tax relief on the pension contribution. For example, if you earn £130,000 and you then pay in a £20,000 pension contribution, you will have a deemed salary of £150,000. If you or now your employer also pays in pension contributions or salary to take you above the £150,000 threshold, you will be caught by the sliding scale tax relief mentioned above.

December 2009 Budget

Employer pension contributions will now added to salary to the anti-forestalling calculation from April 2011.

However, if you earn less than £130,000 before employer contributions are added you will not be affected and be affected by the ‘anti-forestalling’ measures.

This new £130,000 ‘relevant income’ anti-forestalling level started from 9 December 2009.