Generally taxpayers are allowed to make pension contributions of up to £40,000 per tax year without incurring any tax charge. The £40,000 limit includes contributions from both the employer and employee.
The situation is more complex where a taxpayer is accruing benefits under a final salary pension scheme. In such circumstances the employer will provide details of the deemed value of the pension contributions for the employee each year. This value is added to any contributions to money purchase pension schemes in order to ascertain whether the total contributions exceed the £40,000 annual limit.
The tax charge arising can be avoided as there is a mechanism for bringing forward from previous tax years, any unused elements of the previous year’s £40,000 band.
Where an individual’s total income plus their pension contributions exceed £150,000, their annual allowance will be reduced to a figure below £40,000.
Those individuals most likely to incur tax charges in respect of pension contributions, are those higher paid employees who are currently accruing benefits under final salary pension schemes.
For further assistance in this matter, or any other issues relating to the taxation of pension contributions please phone Shacklefords Chartered Accountants on 0121 448 7466 or e mail firstname.lastname@example.org