2009 Budget - Anti-forestalling

The anti-forestalling measures announced in the 2009 Budget.
Our view

It's to be expected that measures would be included to prevent people affected by the tax relief restrictions from 6 April 2011 increasing contributions before then in order to get higher rate tax relief. However, it increases the complexity of tax relief for those affected by the anti-forestalling measures.

If you advise clients with incomes of £150,000 or more in this tax year or either of the last two tax years, you should consider how these rules affect them.

What the Budget says

From 22 April 2009, a new and special annual allowance and annual allowance charge will be introduced. This will prevent individuals affected by the tax relief restrictions increasing their normal pension contributions in advance of the removal of higher rate pension tax relief on 6 April 2011.

The anti-forestalling measures only apply to those:

  • whose income is £150,000 or higher in the current tax year or either of the previous two tax years, and
  • who increase their 'normal, regular ongoing pension savings', and
  • whose total pension savings after any increase exceed £20,000.

The special annual allowance is set at £20,000. This is the upper limit for which higher rate tax relief on new pension contributions is available for those earning £150,000 or more a year. Tax relief on additional pension savings above this amount will attract a charge of 20%. Contributions from all sources (whether employer, member or third party) are taken into account. The charge will be paid through self-assessment. Current 'normal, regular ongoing pension savings' in excess of £20,000 are unaffected.

For people in money purchase arrangements, 'normal, regular ongoing pension savings' are defined as a continuation of contributions made prior to 22 April 2009 that are paid quarterly or more frequently and at a rate that doesn't increase.

For those in defined benefit arrangements, the term includes any increases in pension benefits arising under the existing pension scheme rules at 22 April 2009, including increases due as a result of normal pay rises and progression.

To be clear, the measures don't affect the vast majority of individuals. Individuals not affected are:

  • those with incomes of less than £150,000 for the tax year and for either of the previous two tax years,
  • people who continue their existing pattern of regular pension saving, and
  • people paying less than £20,000.

Salary sacrifice arrangements that reduce income below £150,000 in place before 22 April 2009 won't be affected by these measures. However, any salary sacrifice arrangements entered into on or after 22 April 2009 won't be effective in avoiding anti-forestalling - the sacrificed amount has to be included in the calculation of income.

References:

You can find further details in

The information provided is based on our current understanding of the Budget 2009 and associated documents and may be subject to alteration as a result of changes in legislation or practice.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.