Tapered annual allowance could be another trap for high earners

14th September 2017

Finance
Tapered annual allowance could be another trap for high earners

Many pension scheme members who have a tax charge as the result of breaching the tapered annual allowance may not be able to have their bill paid for by the scheme, and instead will have to paid out of their own pocket.

The taper reduces the annual allowance by £1 for every £2 earned by people with income of over £150,000, with a maximum reduction of £30,000. This means for those people with incomes of over £210,000 their annual allowance will be £10,000. And for those who go over their tapered annual allowance, they will end up with a 45% tax charge from HM Revenue & Customs (HMRC) on anything they go over it by.

The tax take from breaches of the tapered annual allowance for the 2016-17 tax year is set to be high.

Charges are collected in two ways: either direct through ‘scheme pays’, or through self-assessment tax returns. So far only data from scheme pays payments is available for the latest tax year, because self-assessment returns for the 2016-17 tax year will not be received by HMRC until January 2018.

This represents our understanding of law and HM Revenue & Customs practice as at 11/09/2017.

The Financial Conduct Authority does not regulate tax advice.

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