Pension Tax Regime

Over recent years the Government appears to have become addicted to making wide-ranging changes to the pensions tax regime and many would bet on significant (further) changes being announced in the Budget on Wednesday 16 March.  Some changes may take immediate effect from Budget Day; others from 6 April 2016 or later tax years.

Will we see the introduction of a new “pensions ISA” with no tax relief being given on the way in, and no taxation on the way out?

Alternatively, will we see the abolition of marginal rate income tax relief? At present pension contributions can benefit from income tax relief at effective rates of up to 60%. Will this beneficial regime be replaced with a flat rate of income tax relief of say 25% or 30%?

Will the 25% “tax free lump sum” be preserved? Or will pension savings made on or after 6 April 2016 not benefit from such an entitlement?

Until the position becomes clear on 16 March we can only work with the existing regime and individuals would be well advised to take note of some or all of the planning points listed below.  To my mind, anyone banking on benefitting from income tax relief at rates of 40% or 45% or even 60% on making a pension contribution should ensure it is paid over in cleared funds to the pension provider  well in advance of Wednesday 16 March!

Pension Tax Regime


Pensions Tax Regime- Key planning points

  • Any higher rate individual taxpayer considering making a one off personal pension contribution should make sure that the contribution is paid/cleared before 16 March.
  • Any higher rate taxpayer company Director who is considering getting his or her company to make a one off company/employer contribution should also make sure that the  contribution is paid/cleared before 16 March.
  • Carry forward relief (unused Annual Allowance from the three previous tax years) can permit a pension contribution to be made that exceeds the current year Annual Allowance (£40,000 for 2015/16).
  • The current year Annual Allowance must be used in full for the current (2015/16) tax year before any carry forward relief can be utilised.
  • Carry forward relief is used on a “first in first out” basis with unused Annual Allowance from the 2012/13 tax year used first, then 2013/14 and finally 2014/15.
  • Personal pension contributions cannot exceed 100% of a client’s “relevant UK earnings”.  For employees, this comprises salary, bonus and taxable benefits. For the self-employed, trading profits or share of partnership trading profits.  Furnished holiday let profits can also count as relevant UK earnings. Note that dividend, interest, rental and pension income do not count for this purpose.
  • Clients with either Fixed Protection 2012 or Fixed Protection 2014 in place must not make/receive any pension contributions, otherwise they will lose these valuable reliefs.
  • Clients wishing/needing to rely on Fixed Protection 2016 cannot make or receive any pension contributions after 05 April.
  • Clients wishing/needing to rely on Fixed Protection 2016 must register with HMRC before they take any benefits from their pensions for the first time.
  • Carry forward may still be available after 5 April 2016, but any carry forward relief for 2012/13, where the Annual Allowance was £50,000, will be lost, if it is not used in 2015/16.
  • Clients earning £110,000 per year or more should consider utilising all carry forward relief in 2015/16 since from 6 April 2016 they may be  be affected by the new Tapered Annual Allowance


If you would like advice on tax year end planning or information around changes to the pensions tax regime please feel free to get in contact with our expert Tax Team  . We’ll be live broadcasting on budget day from our Periscope and Twitter accounts to give you the latest news as it comes in.

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