The Government intends to make changes so that ‘high earners’ will be able to continue to contribute to a registered pension scheme and receive full (or almost full) tax-relief.   

From April 2011, plans currently exist to restrict tax relief for high earners, with those with ‘relevant income’ exceeding £180,000 p.a. receiving only basic rate tax relief on pension contributions, with a tapering relief on income between £150,000 and £180,000.  The definition of relevant income for this purpose includes such factors as salary, bonus, P11D benefits, employer pension contributions (or additional accrual if a member of a DB scheme), savings interest, investment income and rental income.   

It is likely that going forward, these plans will be repealed and contributions will be determined by the Annual Allowance alone. more

Such an approach will be easier to understand and ‘high income’ individuals will be able to continue to benefit from full (or almost full) tax-relief on contributions to a registered pension scheme.  

Over and above these limits there will be pressure on employers to find alternate remuneration strategies where pension input amounts would otherwise exceed the Annual Allowance. However, changes to capital gains tax will make other forms of remuneration less tax-efficient. more 

It is also worth noting that Employer Financed Retirement Benefit Schemes (EFRBS), are within the scope of HMRC’s anti-avoidance rules.  Indeed, from April 2011 legislation is set to be introduced which will tackle trust arrangements (such as employee benefit trusts, portable international pensions and EFRBS) that seek to avoid, reduce or defer employees’ liabilities to income tax or National Insurance contributions.   

Xafinity can guide you through this complex area to ensure you continue to provide competitive remuneration packages for high earners in a tax-efficient and compliant manner.