ICAEW.com works better with JavaScript enabled.

Continue reading

Pension annual allowance

Q: I have a client who previously had a reduced pension annual allowance due to having taxable income in excess of £110,000 and their adjusted income being in excess of £150,000. I believe these figures have changed, what are the rules for 2020/21?

A: From 6 April 2020 tax relief on pension contributions is restricted for clients with adjusted income of over £240,000. Working out the adjusted income requires a calculation based on the client’s ‘Step 2 income’ from ITA 2007 s23, plus their total pension contributions, including any made by an employer – see the HMRC website.

The available annual allowance is reduced by £1 for every £2 of the excess over £240,000 down to a minimum of £4,000. The maximum reduction to the annual allowance is £36,000, so anyone with adjusted income of £312,000 or more has an annual allowance of the £4,000 minimum.