Pensions Tapered Annual Allowance

Legislation in Summer Finance Bill 2015 introduced a tapered reduction in the annual allowance from 6 April 2016, for those with an ‘adjusted income’ of over a certain limit.

The ‘adjusted income’ definition adds-back any pension contributions, to prevent individuals from avoiding the restriction by exchanging salary for employer contributions.

To provide certainty for individuals with lower salaries who may have one off spikes in their employer pension contributions, a lower ‘threshold income’ limit applies. So, if the individual’s net income is no more than the threshold income limit, they will not normally be subject to the tapered annual allowance.

However, anti-avoidance rules will apply so that any salary sacrifice set up on or after 9 July 2015 will be included in the threshold definition.

The rate of reduction in the annual allowance is by £1 for every £2 that their income exceeds the ‘adjusted income’ limit.

For details of current and previous limits click here


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