Changes to Annual Allowance

Changes to Annual Allowance

Aligning Pension Input Periods

From 6 April 2016, your Annual Allowance for a tax year is restricted if you have an adjusted income of over £150,000 for that tax year (see below for more information on tapered Annual Allowance). To ensure this works as intended, HM Revenue & Customs have aligned Pension Input Periods with the tax year.

For Civil Service Pension arrangements the Pension Input Period was 1 January to 31 December.

This means that you will have two Pension Input Periods for 2015/16. These will be 1 January 2015 – 8 July 2015 and 9 July 2015 – 5 April 2016.

Some individuals may have put in pension savings of more than £40,000 before the Budget, on the expectation that these savings would be tested against the Annual Allowance for tax years 2015 to 2016 and 2016 to 2017 but which will now be only tested against the Annual Allowance for 2015 to 2016.

Transitional rules are being introduced to ensure that in these circumstances pre-Budget savings of up to £80,000 are protected from an Annual Allowance charge.

Tapered Annual Allowance

From 6 April 2016, individuals who have an adjusted income for a tax year of greater than £150,000, will have their Annual Allowance for that tax year restricted. It will be reduced, so that for every £2 of income they have over £150,000, then their Annual Allowance is reduced by £1.

The maximum reduction to the Annual Allowance will be £30,000, so that anyone with adjusted income of £210,000 or above will have an Annual Allowance of £10,000.

Any unused Annual Allowance from the three previous tax years can be carried forward and added to the individual’s Annual Allowance. Where this Annual Allowance is reduced by the taper, the carry forward will be the balance of the tapered amount.

HM Revenue & Customs provide further guidance on transitional provisions for aligning pension inputs, tapered Annual Allowance and the definition of “adjusted income” on their website here.