High earners and pensions

High earners need to consider carefully their pension arrangements. This is because Mr Darling, when he was Chancellor of the Exchequer under the last administration, paved the way for the introduction of a new charge on pension contributions. This charge, to be known as the "high income excess relief charge" is, unless the new administration legislates otherwise, scheduled to come into force on 6 April 2011.

Not only did Mr Darling legislate for this new charge but, in preparation for it, he introduced the "special annual allowance charge" for tax years 2009/2010 and 2010/2011. As you'll have spotted, tax year 2009/2010 has now come to an end and we're already part way into tax year 2010/2011. Tax returns for 2009/2011 are likely to be in the process of being completed or, at least, are on the horizon for completion some time soon.

The new administration has not, as yet, announced precisely what it intends to do in relation to either tax. Will it "adopt" the proposed restrictions on tax relief for high earners due to come in 2011? And if it does, will it continue with the interim measures currently in place for the last tax year and the current tax year? Or, will it abolish tax relief on pension contributions for high earners altogether? Or will it do something else?

The emergency budget on 22 June 2010 will result in changes to pensions tax relief if rumours are to be believed. In this alert, Wragge & Co's pensions experts take a look at the legislation as it currently stands. Leaving aside the abolition of these requirements or a radical re-think on how to further limit pensions tax relief, an understanding of what the law is now should make it easier to make sense of any changes, and how they might impact upon your high earners. Even if there are no changes arising out of the emergency budget next week, is quite possible that there may be further change in the normal cycle of government finance bills. Wragge & Co's analysis on both the high income excess relief charge and the special annual allowance charge should help as a reference point in that event.