12th March 2018

Prudential: The Annual Allowance (AA)

Mark Devlin, Technical Manager at Prudential  covered pensions tax relief in their last edition of Oracle Technical. In the February edition he’ll go through the flip side of the pension funding conundrum, the Annual Allowance (AA).

Whilst tax relief and the AA are factors in pension planning, they are separate entities that have to be understood in isolation, before both parts can be put into practice. 

Technically speaking there are no limits on contributions that can be made to a pension. However, limits are in place on the tax relievable contributions that can be made to a pension. These are broken down below:

Member Contributions

A member can make contributions up to the higher of £3,600 gross or 100% of their relevant income and receive tax relief. Contributions made by a third party will also count as member’s contributions and be bound by this limit on tax relief. Please also be aware that any tax relief granted on a third-party contribution will go to the member of the scheme and not the third party who supplied the funds.

Employer Contributions

A contribution made by an employer into a member’s pension scheme is not bound by the limits of £3,600 or 100% of salary. However these would not grant any extra tax relief to the member of the pension scheme and employer payments to a pension are made gross.

The employer can claim the contribution as a justifiable business expense and as such this will reduce their corporation tax. This is subject to the wholly and exclusively rule.

Read full article here.

Technical, Tax, Trust & ISA, Pensions