The Chancellor’s decision to raise the threshold at which the tapered annual allowance kicks in is welcome but the pension tax system remains overly complex. In reality the Chancellor has missed the ideal opportunity to massively simplify the system by removing the taper altogether.
However it is positive to see the Government is committed to reviewing options with a call for evidence to be issued soon - we need to see action on this.
Here’s our summary of the proposed changes with links to the Budget documents if you would like more detail.
The personal allowance (the amount you earn before you have to start paying income tax) will remain at £12,500. For non-Scottish tax-payers, the amount people will have to earn before they pay tax at 40% will remain at £50,000.
For Scottish taxpayers the rates and bands are as announced by the Scottish Government.
The Government will shortly publish a call for evidence on pension tax relief administration.
Members of occupational pension schemes which use the net pay arrangement don’t benefit from tax relief on their pension contributions if they earn less than the personal allowance. They may benefit from a top-up to their pension contributions to bring them in line with those contributing to personal pensions through the relief at source method.
The annual allowance remains at £40,000 for 2020/21.
The lifetime allowance for pensions will increase from £1,055,000 to £1,073,100 for 2020/21.
The money purchase annual allowance remains at £4,000 for 2020/21.
Threshold income is increasing from £110,000 to £200,000 and adjusted income from £150,000 to £240,000 for 2020/21.
The minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000. This means that all those with adjusted income of £312,000 or over will have an annual allowance of £4,000.
The adult ISA annual subscription limit for 2020/21 will remain unchanged at £20,000.
The junior ISA annual subscription limit for 2020/21 will be uprated from £4,368 to £9,000.
The lifetime allowance ISA limit will remain unchanged at £4,000.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.