Annual Pension Allowance and its limitations

Many practice owners have a multitude of issues to deal with daily, meaning some very important changes to legislation can slip under the radar.

However, keeping up to date with new changes and being aware of the boundaries set by the government can prove to be highly beneficial.
Since April, this year the HMRC has put in place a set of reforms to the annual allowance on pension saving.

The limit at which people could claim tax relief in previous years was £255,000 and this has now been reduced to £50,000.

This affects predominantly stakeholders and owners yielding approximately £100,000 per annum and for those who normally contribute more than £50,000 into a pension scheme.
These changes apply to both personal and occupational schemes ending on or after April 6th 2011. For example, if you have two schemes in place which end within the tax year and the final contributed amount of both exceeds £50,000 then the possessor will be liable for tax on the difference.
One short-term option is to assess the pension contributions the practice owner has made within the last three consecutive years.

If these payments fall below the limitation of earnings as a whole, then the plan holder will be given the opportunity to make up the difference. This however stops when the excess is fulfilled and thereafter a longer-term solution is needed.
Another course of action would be for the company to pay earnings straight into the owner’s pension scheme as earnings for pension purposes.

Stakeholders and practice owners can keep their wage low and derive the majority of their income from the dividends. For instance, if the practice contributed £10,000 as earnings for pension purposes to a practice owner’s salary of £5,000, then the limit of allowed pension contributions would rise to £15,000.
Remaining aware of how tax legislation applies to your business can create huge benefits to the practice and make life after work considerably more secure. There are alternative opportunities to prevent a larger tax bill available to those predominantly affected and independent advice can be highly useful.

For more information please visit or call Lansdell & Rose on 020 7376 9333.


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