From 6 April 2023, the Annual Allowance (AA), increased from £40,000 to £60,000. The AA is the maximum tax-relieved pension saving that can be made each year without attracting a tax charge.
Change around limits for the tapered AA. From 6 April 2023, the tapered AA applies where adjusted income (broadly net income plus employer pension input) is more than £260,000 (up from £240,000) and threshold income (broadly net income less pension contributions) is more than £200,000.
For every £2 of adjusted income above £260,000, the AA is tapered by £1, until it reaches a specified minimum.
From 6 April 2023, the minimum tapered allowance is £10,000, rather than £4,000.
From 6 April 2023, the Money Purchase Annual Allowance is £10,000, rather than £4,000. This lower AA applies where someone has flexibly accessed a defined contribution pension.
The Lifetime Allowance (LTA) charge was abolished from 6 April 2023, and the LTA itself is abolished from April 2024. The LTA has capped the total amount that could be built up in tax-relieved pensions savings. Until 5 April 2023, it was, in most cases, £1,073,100, though a higher limit applied where there was LTA protection.
Excess lump sums above the LTA are now taxed at the marginal rate of income tax, (rather than a 55% tax charge).
The Pension Commencement Lump Sum (the maximum tax free payment available on first accessing pension benefits) is now set at £268,275, except where protections apply.
Whilst welcome news, the tax position of high earners continues to be complex, and we would recommend reviewing the position on an individual basis.
It is worth mentioning that pension planning for Scottish taxpayers can only become more significant with change to Scottish income tax rates and bands projected from 6 April 2024.
Making pension contributions remains one of the most tax efficient ways to invest for your future. Whether you are a director-shareholder, self-employed business person or partner, we would be happy to discuss this area with you further.