CH26 - Pension Schemes Flashcards
SP going above PA next year - contoversial
Type of Schemes
The main ways of providing funds for retirement are via:
- personal pension schemes; and
- occupational pension schemes (for employees where offered by employers).
Registered pension funds do not pay IT or CGT so grow tax free.
Recommended by Govt.
Retirement Benefits
If the individual draws from a pension fund (for example, on retirement), ?
25% of the amount drawn (subject to a maximum of £268,275) is tax free. The rest is taxable non-savings income.
Pensions can be drawn at 55 latest 75.
Maximum Contributions
The maximum gross contributions qualifying for tax relief that a taxpayer can make into a pension scheme each year is the higher of ?
100% of their relevant earnings for the tax year or £3,600.
‘Relevant earnings’ include employment income, trading income and income from furnished holiday lettings.
Tax Relief
Relief is given on amounts contributed to a personal pension scheme at source - basic rate relief is given at source by ? Higher and additional rate relief is given by ?
the taxpayer only paying 80% of the contribution.
extending the basic and higher rate limits by the gross contribution.
Scottish taxpayers also pay contributions net of 20% tax, and the Scottish higher and top rate tax limits are extended by the gross contributions
Tax Relief
Relief on amounts contributed to occupational pension schemes is generally given under ‘net pay arrangements’ whereby ?
PAYE (but not NICs) is applies to salary after the pension contribution has been deducted.
If an employer contributes to an employee’s scheme this is a tax-free benefit, but it must be considered when looking at whether the annual allowance has been exceeded.
Annual Allowance
The annual allowance for 2023/24 is ?
£60,000.
Annual Allowance
The annual allowance for the current year is increased by any unused allowance from ?
the previous three years.
- The current year annual allowance is used in priority; and
- Unused annual allowance is utilised on a FIFO basis.
Annual Allowance
The annual allowance is tapered for high income individuals. An individual is a high income individual where ?
‘threshold income’ exceeds £200,000 and ‘adjusted income’ exceeds £260,000.
‘Threshold income’ is generally net income less the gross amount of personal pensions contribuitons.
‘Adjusted income’ is net income plus occupational pension contributions plus employer contributions.
Annual Allowance
The annual allowance is reduced by ?
£1 for every £2 of adjusted income in excess of £260,000
but cannot be reduced to below £10,000.
Annual Allowance Charge
Pension input in excess of the annual allowance is subject to a tax charge at ?
the individual’s marginal rate of tax.
