Changes to Pension Relief

The rules have changed this year for pension relief which is the only real relief left for taxpayers.

There are a number of schemes which exist for making retirement provision.

The combined limit of annual contributions across all the schemes cannot exceed £50,000 or the related earnings during the year of assessment, whichever is the lower. Related earnings are specifically defined in the income tax law. In general terms they are:

  • income arising in respect of salary and wages from employment; and
  • income from the carrying on of a trade or profession or, as a partner of a business.

From 2012 the combined limit of the qualifying contributions which are eligible for relief will be restricted if an individual's total income exceeds £150,000. In the case of a married couple, each spouse will have their own £150,000 limit.

A tapering provision applies under which an individual whose total income is only just over the £150,000 limit will not immediately lose all of the tax relief available on their pension contributions. Under this provision the combined total contributions eligible for tax relief are reduced by £1 for every £1 that the individual's total income exceeds £150,000.

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