Pension Tax Relief Changes
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On Thursday the coalition government announced changes to pension tax relief rules. In summary the changes are:
- From 6th April 2011, the Annual Allowance is to be reduced to 50,000. This is a huge drop from the previous allowance of 255,000.
- From 6th April 2012, the lifetime allowance will be reduced from 1.8m to 1.5m.
- Tax relief will be available at the taxpayers marginal rate for contributions up to the annual allowance
- You will be able to carry forward unused annual allowance from the three previous tax years
Our view is that in the main, the proposals simplify the current situation greatly. There is also good news for 50% taxpayers in that they will be able to claim tax relief at this rate, rather than 20% as proposed by the previous government.
The new rules will not affect a majority of those paying into pensions, but those who make very large contributions will be affected. Also people in final salary schemes that receive a large pay rise are at risk, although the ability to carry forward unused allowances should provide the cushion needed in most cases.
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