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Special Annual Allowance Charge – New Limits For 2009/10

In the Pre-Budget Report last month, changes were announced to the complex rules for the Special Annual Allowance (SAA) charge which affects those with substantial income who make significant pension contributions. The current rate of the SAA charge is 20% on excess pension contributions. The aim of the charge is to discourage individuals from making significantly higher pension contributions in anticipation of the removal of higher rate tax relief which will occur in 2011.

The main features of the charge are:

• It applies for 2009/10 and 2010/11 to individuals with relevant income in excess of £150,000 in either of those years or the two preceding years and where increased pension contributions have been paid after 22 April 2009.
• The total pension contributions paid exceed £20,000 (the ‘SAA threshold’). A higher threshold of up to £30,000 may be possible depending on the level of contributions in previous years.
• The SAA threshold is reduced by the amount of so-called ‘protected’ contributions which are sums being paid at least quarterly under arrangements put in place before 22 April 2009.

It is now proposed to lower the threshold for triggering the SAA charge by reducing the relevant income limit to £130,000 with effect from 9 December 2009. Individuals will be affected by this if their relevant income in 2009/10 or either of the two preceding years exceeds £130,000. For 2009/10 only, protected contributions will include any contributions paid up to and including 8 December 2009.

The rules will catch one-off contributions made by employers as well as lump sum payments made by the scheme member. In either case the charge is on the individual.

If you think you may be affected by this change in the rules please do get in touch.

Internet link: HMRC pbrn18