“That said, it will be a significant tax saving for many senior consultants who were facing a difficult choice of taking on additional work and incurring huge tax bills. The ultimate tax saving for some could be six figures."
Threshold Income is broadly defined as ‘the individual’s net income for the year.
This will include all taxable income such as, salary, bonus, pension income (including state pension), taxable element of redundancy payments, taxable social security payments, trading profits, income from property (rental income), dividend income, onshore and offshore bond gains and taxable payment from a purchased life annuity.
It also includes interest from savings accounts held with banks, building societies, NS&I and Credit Unions, interest distributions from authorised unit trusts and open-ended investment companies, profit on government or company bonds which are issued at a discount or repayable at a premium and income from certain alternative finance arrangements, less the amount of any taxable lump sum pension death benefits paid to the individual during the tax year that can be deducted from the threshold income.
Under the new rules if that gets to more than £200,000 then you need to calculate the adjusted income.
Adjusted income is all income plus any pension contributions paid in the relevant period. A note by AJ Bell says, this means sacrificing salary or bonus payments for employer contributions purely to reduce your adjusted income for this purpose would be ineffective.
The changes to the tapered annual allowance might mean that less people are penalised, but it doesn't make the pension tax system any simpler.
Tapered allowance reform?
>Just because you get an annual allowance charge, doesn’t make having a pension a bad idea.--Les Cameron
Mr Greer says: “Questions have to be asked about the original policy design behind the tapered annual allowance. It was ill-conceived from the outset and now it is being overhauled after just a few years, with the government giving up a big chunk of expected tax revenue in order to partially unwind some of the policy flaws.”
Les Cameron, head of technical services at Prudential UK adds: “The annual allowance is a really complicated part of the pensions legislation and it would have been an easier place without it.
“If the government is going to do anything, they need to have a root and branch review to see if it will be good for the future.”
Mr Cameron says with the changes announced in the Budget, although there will still be tax charges to pay, they will be far smaller, while people who had previously restricted their contribution or stopped it will now be able to start re-saving.
