2009 Budget - Anti-forestalling

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

• BN47: Pensions: Limiting tax relief for high income individuals (anti-forestalling), HMRC, 22 April 2009.
• HMRC guidance notes on Tax Relief on Pension Contributions
• Pension Schemes: Limiting Tax Relief for High Income Individuals, Guidance for Pensions Industry, HMRC, 22 April 2009. This includes some useful Q&As; for financial advisers on page 16.

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.