Summary of the Budget 2009

Abolition of higher-rate income tax relief from 2011/12 for higher earners

The Chancellor announced that from the 2011/12 tax year higher-rate tax relief will be reduced for those with income of more than £150,000, tapering as the level of income increases, so that those with incomes in excess of £180,000 per annum will only receive basic-rate tax relief of 20%.

Interim restriction on higher-rate tax relief from 22 April 2009 for higher earners

The Government wish to avoid providing a large amount of tax relief in the intervening period on contributions that would have otherwise been paid after 6 April 2011. They have therefore introduced some interim measures.

A Special Annual Allowance Charge (SAAC) of 20% (2009/10) has been introduced.

The SAAC will apply only to those whose income exceeds £150,000 in the tax year or in any of the two previous tax years. Income for this purpose is:
• total income for the tax year before pension contributions, personal allowances or any other reliefs or deductions
o less any normal deductions for reliefs (such as trading losses), including deductions for pension contributions up to a maximum of £20,000
o less gift aid deductions
• plus any income foregone by a salary sacrifice arrangement in return for pension contributions entered into on or after 22 April 2009.
Note: Contributions paid before 22 April 2009 are excluded from the 2009/10 tax year. They are classed as "Protected Pension Input". Any contributions paid between 6 April 2009 and 21 April 2009 will reduce an individuals' Special Annual Allowance, but will not themselves be subject to the SAAC.

A person's Special Annual Allowance is £20,000 per annum. This figure includes employers' contributions and defined benefit scheme accrual, i.e. it is calculated in the same way as a Pension Input amount for Annual Allowance purposes. Subject to two exemptions, any input in excess of £20,000 will be subject to the SAAC.

The exemptions are:
1. Where regular contributions currently exceed £20,000 per annum. No charge will occur up to that amount providing that the regular contributions continue to be paid in accordance with contractual obligations in force before 22 April 2009. Note that contributions paid less frequently than quarterly do not count as regular contributions.
2. Where the member retires on grounds of ill heath or dies before the end of the tax year.
Existing tax reliefs will still be available to those who contribute £20,000 or less in a tax year.
The above is based on our knowledge and understanding of the proposals published to date but we would recommend that anyone who believes they may be affected should seek specialist tax advice from their accountant/financial adviser.
If you have any queries on this topic please contact one of our Pension Consultants on 01483 521521 or email enquiries@dentonspensions.co.uk.