There are further changes affecting pensions that took effect from 6 April 2016. These are summarised below. Tapered annual allowance for high earning individuals
- From 6 April 2016, if your taxable income in any tax year is above £110,000 and your ‘adjusted income’ (broadly your taxable income plus any employer pension contributions) is over £150,000 your annual allowance will be reduced.
- For every £2 of adjusted income over £150,000, your annual allowance will be reduced by £1, subject to a minimum annual allowance of £10,000.
- Therefore, if you have an adjusted income of at least £210,000, your annual allowance will be £10,000.
HM Revenue and Customs has also introduced new provisions that will prevent anyone entering into a salary exchange arrangement after 8 July 2015, in order to reduce, or avoid, the impact of the new rules avoiding the impact of the tapered annual allowance.
The lifetime allowance has reduced from £1.25m to £1m
From 6 April 2016, the total amount of benefits you can take from all your pension schemes without incurring a lifetime allowance tax charge has reduced from £1.25m to £1m.
Two new lifetime allowance protections
From 6 April 2016, to protect people with existing pension funds from being penalised by the reduction in the lifetime allowance, the Government has introduced two new types of lifetime allowance protection.
- Fixed Protection 2016; and
- Individual Protection 2016.
If you wish to register your pension savings for either ,or both of these forms of protection you will need to apply directly on line with HM Revenue & Customs (HMRC). Before doing so you will need to set up an on line account with HMRC. The link to enable you to do so is:
- HMRC has provided links to assist clients with the registration process and how benefits need to be valued as part of that registration. Links to that support are https://www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance andhttps://www.gov.uk/guidance/pension-schemes-value-your-pension-for-lifetime-allowance-protection
We would recommend that you speak with your financial adviser before taking any action to register your savings for either form of protection.
Changes affecting your beneficiaries if you die on, or after, your 75th birthday
From 6 April 2016, if you die aged at least 75, the tax rules that apply to the value of pension savings your beneficiaries receive are as follows:
- Any individual who receives a death benefit in the form of a lump sum and/or as income will be taxed at their marginal income tax rate(s), i.e. the money they receive from your pension scheme as your beneficiary will be added to their other income and taxed accordingly.
- The current rule which allows a UK charity to receive a lump sum death benefit free of income tax (if certain conditions are met) will not change.
- If the recipient of a lump sum is neither an individual nor a UK charity, for instance if it is a discretionary trust, the current 45% tax charge relating to a lump sum death benefit will not change.
If a lump sum is paid into a discretionary trust and then paid to an individual beneficiary as income, the beneficiary will be given a tax credit to reflect the 45% tax paid when the lump sum was paid into the trust. The beneficiary may be able to reclaim some, or all, of the tax paid.