Following our earlier post, details are beginning to emerge from the Pre-Budget Report which were not apparent from the earlier speech.

In the actual Budget, it was announced that individuals earning over £150,000 would be liable to pay income tax at 50% and pension tax relief would be tapered to 20% for those earning £180,000 or more. Anti-forestalling legislation was introduced to prevent higher earners making pension contributions ahead of the 2011 implementation date. (See our Budget Bulletin for further details).

The Treasury originally said that existing salary sacrifice arrangements and large employer pension contributions would not be taken into account when determining total income for these purposes. It did warn that individuals or companies seeking to implement such arrangements post-Budget would face penalties.

However, the Government has today backtracked announcing that, from today, anyone earning £130,000 will also have their employer pension contribution included in the calculation to determine total income for determining pension tax relief. This measure is expected to bring a further 150,000 higher earners into the restricted regime.

The Pre-Budget Reports states: ” The restriction of pensions tax relief from April 2011 will apply to those with gross incomes of £150,000 and over, where gross income incorporates all pension contributions, including those funded by an employer.”

“This will be subject to an income floor, so that individuals with pre-tax incomes (excluding employer pension contributions) of less than £130,000 will be unaffected.”

Early analysis suggests that high earners in defined benefit (‘final salary’) arrangements are most likely to be affected as employer pension contributions can be significant.

EBS is currently preparing a guide to all of these changes, including a series of case studies and this will be available  in January. If you would like advice on any aspect of personal taxation or pensions please get in touch. An initial consultation is available at our expense and is free from obligation.

A complete analysis of the Pre-Budget Report will appear on this site shortly.

Posted in individuals |