Tax Relief for Higher Rate Payers (Oct 2010)

Some higher rate taxpayers may have until April to make significant contributions to their pension and benefit from full tax relief before significant changes are implemented. For those not already affected, the maximum total contribution that anyone can make into a pension contract will be substantially reduced to £50,000 gross per year, and this includes any payments made by an employer.

As regular readers will be aware, the last government introduced complex rules restricting tax relief on pension contributions for those earning in excess of £130,000 per annum, in any of the last three years. The new coalition government has decided to simplify the rules and on that basis has recently announced its proposals.

At the moment, an individual with an income of less than £130,000 per annum, in the current and previous three tax years, may obtain full tax relief on personal contributions equal to their earned income. It is also possible to pay in even more than that amount.

The new proposals will have a marked effect on how best to provide for the future. With these significant restrictions on investments looming, anyone looking to invest in a tax efficient manner for long term capital growth and an income in retirement ought to be considering their options very carefully.

A pension contract may not be appropriate in all circumstances and individual advice is essential. It is worth noting however that pension contracts aim to provide a lump sum that is currently not subject to tax together with a taxable income for life.

Cartlidge Morland is an independent employee benefits consultancy. We provide benefit services to a wide range of partnerships, family companies, PLCs, charities and governmental organisations. We also provide financial advice to private clients, investment management and mortgage broking services

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