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.

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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.