FOR ADVISERS ONLY

2009 Budget - Limiting Tax Relief For High Income Individuals

The 2009 Budget restricts tax relief on pension contributions for those earning £150,000 or more a year. Relief will be tapered away until those earning over £180,000 will receive relief at 20%, the same as for a basic rate taxpayer. This will be effective from 6 April 2011.

Our view

This obviously reduces the incentives for pension savings for those affected. However, this doesn't mean that saving via a pension scheme is no longer worthwhile.

For basic rate taxpayers and those earning up to £150,000 a year there will be no change - they will still be able to receive tax relief on pension contributions at their marginal tax rate.

What the Budget says

Those earning £150,000 or more a year will have their tax relief on pension contributions restricted. Relief will be tapered away for those earning between £150,000 and £180,000 a year.

For earnings over £180,000 a year, relief will be worth 20%, the same as for a basic rate taxpayer.

There are no details as to how the tapering will work, nor if it will be tapered from 50% to 20% or 40% to 20%.

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.