Newsletter Spring 2016

Pension contributions to be limited

The amount you and your employer can contribute into your pension fund each year is limited by your pension Annual Allowance (AA). This is set at £40,000, plus any unused allowance from three preceding years. However, 'top earners' will see their AA tapered down to a minimum of £10,000 for 2016/17.

If your pension contributions exceed your AA for the year, you have to pay tax on the excess contributions at your highest rate of Income Tax. So it's important not to exceed your AA if at all possible.

A 'top earner' is someone with total income of £150,000 or more. But this figure includes the value of any contributions the taxpayer and their employer make into the taxpayer's pension fund in the tax year. Many selfemployed people will find it impossible to calculate their total income until after the end of the tax year.

If your income in 2016/17 is likely to be £110,000 or more, before pension contributions are counted, you should ask your employer about the value of the amount added to the company pension scheme on your behalf. You may need to opt out of the company pension scheme before 6 April 2016 and negotiate compensation for that opt-out.

You could also consider transferring income-generating assets, such as property or shares, to a lower-earning spouse or civil partner before 6 April 2016. This will lower your income and raise that of your spouse. However, a transfer to an unmarried partner will trigger a disposal which can be subject to Capital Gains Tax.

A third option is to maximise your pension contributions before 6 April 2016 by making use of any unused AA brought forward from the previous three tax years.

Let's discuss all of your options concerning pension contributions. Tax could be payable if you leave planning to the last minute.