HMRC has published basic guidance for taxpayers with income for a tax year above £150,000 on calculating their tapered annual allowance for pension scheme contributions for 2016 to 2017 and later tax years using their threshold and adjusted income
For the 2016 to 2017 tax year (and onwards), if an individual’s ‘adjusted income’ is over £150,000, their annual allowance in the same year will be reduced.
However, HMRC points out that this will not be reduced if the taxpayer’s ‘threshold income’ for that year is £110,000 or less - no matter what the adjusted income is.
For every £2 the adjusted income goes over £150,000, the annual allowance for that year drops by £1. The drop is limited so that the minimum tapered annual allowance available is £10,000.
The guidance explain how taxpayers can calculate their threshold and adjusted income, starting with calculating their net income by adding up all taxable income and deducting appropriate tax reliefs.
To work out their threshold income, taxpayers then need to deduct from the net income the gross amount of pension contributions where tax relief has been given at source, plus any lump sum death benefits received from registered pension schemes. They should then add any reduction of employment income for pension provision through salary sacrifice arrangements and/or flexible remuneration arrangements set up after 8 July 2015.
To work out their adjusted income, taxpayers should add back to the net income any pension savings made by their employer, plus payments made to their pension scheme that got tax relief but were paid before tax relief was given. They should then deduct the amount of any lump sum death benefits you received from registered pension schemes.
Pension schemes: work out your tapered annual allowance is here.
Check your pension annual allowance is here.
