Exceeding the annual pension allowance
If your pension savings exceed the annual pension input limit (generally £40,000) then there is an annual allowance charge. The effect of the annual allowance charge is to reduce tax relief on any pension saving over the annual allowance.
The annual allowance charge is not at a fixed rate but will depend on how much taxable income an individual has and the amount of their pension saving in excess of the annual allowance. Hence for a higher rate taxpayer the charge would be 40% on the excess over the annual pension allowance. Note that annual pension input includes any contributions made by the employer and it may be those contributions that trigger the charge.
You can ask your pension provider to pay HMRC out of your pension pot if you’ve gone over your annual allowance and the tax is more than £2,000. You must tell your pension provider before 31 July if you want them to pay the tax charge for the previous tax year.
For further information on the Annual Pension Allowance, please contact Arthur Bell on 023 8046 1258.