Home > News > 2009 > December 2009 > Pre Budget Report 2009 – Issues for SSAS, SIPP and FURBS
Pre Budget Report 2009 – Issues for SSAS, SIPP and FURBS
Tax Relief On Pension Contributions For “High Earners”
As already announced in April’s Budget 2009 and set out in the Finance Act 2009, tax-relief on high earners’ pension contributions is to be restricted from April 2011 to the basic rate of income tax, 20%. The restriction will be tapered for individuals earning between £150,000 and £180,000, with basic rate tax relief applying where earnings are above £180,000. The restriction on tax-relief will apply to all pension contributions, including those by employers and will be of concern to many members of SSAS and SIPP.
In his Pre Budget Report, the Chancellor announced that the restricion on tax-relief will apply to all individual on gross incomes of £150,000 and over, where gross incomes includes the value of pension benefit funded (or eventually funded) by their employer.
A new “floor” is to be introduced so that individuals whose pre-tax income (including individual, but not employer, pension contributions) is below £130,000 will not need to establish the value of pension benefits funded by their employer. SSAS and SIPP members earning below £130,000 will not therefore be affected by the restriction of tax relief. Affected individuals will suffer a recovery charge on tax-relief which will be processed via the self-assessment system.
Transitional Arrangements (“Anti-Forestalling”)
Individuals earning over £150,000 are already subject to the Special Annual Allowance Rules set out in Schedule 35 of the Finance Act 2009. With immediate effect (ie from 9 December 2009), the rules will be amended slightly to apply to individuals:
- whose income is £130,000 and over
- who change their “normal ongoing regular pension savings”
- and whose total pension savings in a tax year exceed £20,000 (or the lower of £30,000 and average contributions over the past three years, if contributions are less regular than quarterly)
The transitional arrangements apply for the current tax year (2009/10) and next year (2010/11). The Special Annual Allowance charge for 2009/10 is 20%. For 2010/11 the charge will be “the appropriate rate” as determined on an individual basis, i.e. 20% for a 40% tax payer and 30% for a 50% taxpayer. For further details see PBRN19.
Further technical detail, including specific conditions applying to individuals earning between £130,000 and £150,000, are set out in HMRC’s technical note and draft legislation. HMRC have also issued a PBR Note (PBRN18) on the subject.
FURBS and EFRBS
Certain lump sum payments and gratuities made by employer financed retirement benefits schemes (EFRBS) to an entity that “is not an individual” are currently taxed at 40%. This rate will rise to 50% from 6 April 2010 (see PBRN19) in line with the higher rate of income tax for high earners. The "certain lump sum payments and gratuities" are not defined in either the Pre Budget Report or the accompanying Pre Budget Report Note. As soon as the details are revealed, we will update this posting. It is presumed that this will also extend to similar activities in pre 2006 FURBS arrangements.
The information in relation to EFRBS on this website and linked documents has NOT been updated in light of the Government’s announcements on changes to EFRBS and Disguised Remuneration. If you wish to discuss EFRBS then please contact the Executive Pensions team.