Annual Contribution Allowance Until the A-Day changes of April 2006 depending on your age you were able to invest a percentage of your earnings to a pension. This has now been swep away and simplified to an annual limit and an overall amount you can contribute, the Lifetime Allowance.
There is an annual allowance that applies to all contributions that you or any third party (including an employer) makes. Your contribution can be a maximum of 100% of your earnings up to £215,000 in the tax year 2006/2007 or £3600 gross if you have no earnings in the tax year. You will have to pay 40% tax, via your self assessment tax return, on any amount of contribution above this annual allowance.
The annual allowance is set to rise over the next few years:
2006/2007 tax year - to £215,000
2007/2008 tax year - to £225,000
2008/2009 tax year - to £235,000
2009/2010 tax year - to £245,000
2010/2011 tax year - to £255,000
Any further increases after this date will be at the discretion of the Government and will be announced nearer the time. Any personal contributions you make or any contributions paid by a third party on your behalf, will be paid net of the UK basic rate income tax applicable in the year the contribution is paid, providing that contributions meet the conditions set by HMRC. Any contributions paid by your employer, if applicable, will be paid gross. This means that no tax relief is due to you or your plan on these contributions however your employer may be entitled to claim tax relief.
Lifetime Allowance The lifetime allowance is the maximum amount of pension savings that can benefit from tax relief. It applies to the total value of all pension schemes that you are currently, or have been a member of, even if you have not contributed to them yourself. The lifetime allowance has been set at £1.5 million for the tax year 2006/2007, rising in stages to £1.8 million by 2010/2011. Further increases after this date will be at the Government’s discretion:
2006/2007 tax year - £1.5 million Lifetime Allowance
2007/2008 tax year - £1.6 million Lifetime Allowance
2008/2009 tax year - £1.65 million Lifetime Allowance
2009/2010 tax year - £1.75 million Lifetime Allowance
2010/2011 tax year - £1.8 million Lifetime Allowance
In certain circumstances you may be entitled to an enhancement to the lifetime allowance. You should seek financial advice if you think this may apply to you. If the total value of your pension arrangements exceeds the permitted lifetime allowance at the time you start drawing benefits there may be tax charges.
The amount of the lifetime allowance charge, which is payable to HMRC, depends on how you choose to take the excess pension fund:
a). As a lump sum, it will be subject to a lifetime allowance charge of 55% on the amount or b). As an income, the fund will be subject to a lifetime allowance charge of 25%.
Tax penalties may also apply where lump sum death benefits exceed the lifetime allowance. In addition, normal income tax deductions will be made from the income paid to you through the ‘Pay As You Earn’ (PAYE) scheme.
Want more information or have a query: Share dealing is administered by Hoodless Brennan as Account Manager and any additional pension investment outside equity dealing or administration for the pension is the responsibility of Capita SIP Services as Pension Plan Manager.
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