Tapered Annual Allowance

29th January 2017

Pension Contributions: Maximum now restricted by tapered annual allowance.
The annual allowance is the maximum value of pensions savings that you, your employer and other third parties can pay into your pensions each year without incurring a tax charge. The standard annual allowance for the 2016/17 tax year is £40,000. If you are a high-income individual for a tax year, your annual allowance will reduce by £1 for every £2 of adjusted income above £150,000 up to £210,000. If your adjusted income is over £210,000, your annual allowance will be £10,000.

Example:
In the 2016/17 tax year Jerry has a salary of £100,000 and receives £30,000 of dividends. He pays £15,000 gross of personal contributions to a SIPP. His employer also pays a contribution of £25,000.
His threshold income is:
Salary (£100k) + Dividends (£30k) – Personal Contributions (£15k) = Threshold Income (£115k)
His adjusted income is:
Salary (£100k) + Dividends (£30k) + Employer Contributions (£25k) = Adjusted Income (£155k)
Therefore Jerry is a high-income individual for the 2016/17 tax year.
The standard annual allowance is reduced by £1 for every £2 of adjusted income over £150,000: £155,000 (adjusted income) – £150,000 = £5,000 excess income £5,000 ÷ 2 = £2,500 reduction
£40,000 (standard annual allowance) – £2,500 = £37,500 tapered annual allowance.



 
Other items in Blogs
 
Fiona Mann
22nd July 2019 Exam Success – World Beating Results!

  We’ve had some extraordinary exam results over the last few days – staff at Whiting & Partners have excelled themselves. Luke Bacon from St Ives office has achieved an outstanding result of 99% for the Financial Accounting and Reporting exam – coming joint first in the world.  This result has been recognised by the…

Read More »

Matilda Mawson
19th July 2019 Changes to Entrepreneurs Relief from 6 April 2019

Entrepreneurs’ relief allows a reduced rate of capital gains tax on disposals of all or part of your business assets. The reduced tax rate is 10% on up to £10 million of lifetime gains. There have been a number of significant changes to entrepreneurs’ relief in the last year, tightening the rules on qualifying conditions…

Read More »

Ernesta Petkeviciute
19th July 2019 New SRA accounting rules – what’s changing?

The current Accounts Rules are made up of over 40 detailed requirements, making it difficult for firms to fully understand what is required of them, as well as giving firms no flexibility to adapt them to their own practices and decide how best to look after client’s money.   The new rules coming into effect…

Read More »

Vanessa Pearson
15th July 2019 IR35: private sector off-payroll rules for contractors

This week HMRC have published draft legislation that will affect private sector personal services companies (PSCs)  from 6 April 2020. PSC’s supplying services to medium or large-sized organisations will no longer decide if they are employed or self-employed, the end engager will assess this. If caught by these rules, known as IR35, employment taxes and…

Read More »

Paul Jefferson
15th July 2019 Company car tax changes – Government will remove BIK company car tax on Electric Vehicles from 2020/21

The government has provided positive news for Company car drivers announcing that a pure electric vehicle (EV) will no longer pay benefit-in-kind (BIK) tax in 2020/21 following a review which looks set to boost sales of emissions-free cars. HM Treasury’s response to its review of the fallout from the roll-out of the Worldwide Harmonised Light…

Read More »

Barbara Nicholas
9th July 2019 31 July: Can you elect to reduce your tax payment?

Most individuals who are required to prepare and submit a self-assessment tax return to HM Revenue & Customs in each tax year should now be preparing for their next half-yearly tax payment which is due by July 31.   This tax is the second payment-on-account for the 2018/19 tax year. It is automatically calculated as…

Read More »