The changes to Maximum contributions for tax relief which come into effect on 1st Jan 2012 are outlined below.
The combined limit of annual contributions into all pension schemes can not exceed £50,000 or the related earnings during the year of assessment, which ever is the lower. Related earnings is specifically defined in the income tax law but is generally:
- 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.
In effect once you have total income in excess of £200,000, you will obtain no tax relief for making contributions into a pension scheme. It is important that you consider this when making contributions into your pension from January 2012 onwards.
Should you require further information, or an evaluation of your individual situation, please contact Stephen Phillips on 01534 753753.