RSM Tenon - changes to the tax rules

More changes to tax relief for pension contributions

The Government has announced changes to the tax rules surrounding pension contributions from April 2011.

Prima facie, these new measures are good news for entrepreneurs. They are more generous than the original proposals and provide for higher rate tax relief for up to £50,000 per year. Of particular interest to entrepreneurs will be the ability to carry forward unused allowances to accommodate 'spiky' income patterns and this presents many planning opportunities.

The headlines are as follows:

* The Annual Allowance will reduce from £255,000 to £50,000 from April 2011. There is no proposal to index the Annual Allowance

* The Lifetime Allowance will reduce from £1.8m to £1.5m from April 2012

* Tax relief will be available on the £50,000 at an individual’s marginal rate

* Individuals will be allowed to offset contributions exceeding the annual allowance against unused allowance from the previous 3 years

* Those in defined benefit schemes will be allowed to fund any tax charge out of pension benefits

The Government has indicated that it will continue to consult on various matters contained within the document and we will of course continue to be part of that process.

The key message is that it is 'all change' once again so advice must be sought before taking any action.