Tax Rules

Under current rules the key limits are:

Current rules
Life Time Allowance
£1,073,100
Annual Allowance
£40,000*
Maximum Employer Contribution up to (unless previous years allowances used)
£40,000*
Maximum Member Relievable Personal Contributions (within Annual Allowance)
100% of salary up to £40k or £3,600 if greater
Maximum Pension Commencement Lump Sum (currently tax free)
25% of the member’s fund value up to 25% of the Lifetime Allowance
Money Purchase Allowance
£4,000

*Individuals with adjusted earnings over £240,000 have their annual allowance reduced by £1 for every £2 of adjusted income up to an upper limit of £312,000.

Care needs to be taken, therefore, in making sure these limits are not exceeded. Contributions, in excess of the allowances, will be subject to an annual allowance charge.

We will provide advice where required and monitor these limits for members.

The other key tax penalties to note are as follows:

Current rules
Charge on exceeding the Annual allowance
20% - 45% depending on the members tax rates
Charge on exceeding the Lifetime allowance
55% if taken as a lump sum. 25% if taken as income (in addition to other personal taxes)
Unauthorised payment charge*
40%
Scheme Sanction Charge* (Levied on administrator)
15%

*The unauthorised payment charge and scheme sanction charge arises, broadly, where an investment or payment is made which is not an authorised payment within the pension legislation.

This could arise where an inappropriate investment is made, for example residential property or money is paid out to a member other than as pension commencement lump sum or as taxable pension income.