If your income is in excess of £100,000 you will already pay tax at higher rates. Pension contributions are often used to reduce the impact of these higher rates. The allowance for pension contributions is being reduced from 6 April so, if you want to avoid income in excess of £100,000 or maximise your pension savings before the contribution restrictions begin on 6 April 2016, you are running out of time to act.

The annual allowance determines the amount of pension saving an individual can make each year. For most individuals it is £40,000.  It is possible to carry forward unused allowance from the previous three tax years to offset any excess in the current year and can lead to generous pension capacity.

From 6 April 2016 the annual allowance is to be tapered down to £10,000 for certain “high earners”, but calculating who is affected is not straight forward.

Broadly, if your total income (and that includes unearned as well as earned income) exceeds £110,000, you have to then calculate your “adjusted income” by adding in the value of your pension contributions (including employer contributions).  If your total income then exceeds £150,000 then the taper will start to apply and will restrict contributions you can make.

The benefit of reviewing your pension position promptly cannot be overstated, since this short period may be the last opportunity to either avoid income in excess of £100,000 in the current tax year or make a substantial pension contribution before the future restrictions start. In order to further consider this one off possibility please contact Graeme Blair, Tax Partner, at graeme.blair@goodmanjones.com or your usual Goodman Jones contact.