Services
Audit & Assurance
External, internal and joint venture audit services
Business Advisory
Management accounts, strategic planning, profit improvement, ESG
Corporate Finance
M&A advisory, selling a business, fundraising, valuations, due diligence
ESG
Baseline assessments, materiality assessments, carbon footprint and sustainability reporting
Hotel Accounting
Accounting function, automation, daily reconciliations and dashboards, accounts payable
Payroll & Employment
Payroll, global mobility, employee benefits, employment taxes
Private Clients & High Net Worth Individuals
Tax planning & compliance, tax residence and domicile, trust planning
Restructuring & Recovery
Business rescue, liquidations, administrations, insolvency, debt recovery
Tax
Corporate tax, customs duty, VAT, R&D, tax investigations, international tax
Virtual Finance
Bespoke service providing real-time information about your business performance
More from AAB
AAB PEOPLE
Full-service people consultancy – human resources, learning and development
AAB WEALTH
Financial planning, cash flow modelling, retirement planning
AAB Consulting
Business consultancy helping organisations with the challenge of change
Sectors
Business Services
Professional services, medical, recruitment and media
Construction & Property
Property developers, construction companies, housebuilders, landlords
Energy
Renewables, clean energy, energy producers, energy transition, exploration and production
Family Business
Specialist support for businesses owned/managed by families
Food & Drink
Food & drink producers, processors, importers, wholesalers and retailers
Industrial
Engineering, manufacturing, aerospace, automotive, shipping, distribution
Leisure, Retail and Hospitality
Fashion, entertainment, activity centres, hoteliers
Not For Profit
Charities, social housing, higher and further education institutions
Public Sector
Government, non-departmental public bodies, health boards, ALEOS
Technology
Software companies, tech start-ups, cybersecurity firms, and AI innovators.
About
AABout Us
Our story
Our Team
Meet the specialists
Careers
Join the AAB team
Diversity & Inclusion
Building a business where everyone feels they belong
Growing Sustainably - ESG
ESG – Our commitment to building a sustainable business
News
Latest news from across AAB Group
AABIE
AAB charitable initiative
AAB Wealth expands presence in Central Scotland with acquisition of Synergy Financial Planning
Insights
Blogs
Stay informed with cutting-edge news for business growth. Our experts offer industry insights and invaluable advice on accountancy and business strategies.
Case studies
Explore insightful case studies tailored to specific industries, offering invaluable lessons and strategies for success.
Webinars & Events
Engage with dynamic webinars and events tailored to your interests, offering valuable insights and networking opportunities.
ESG Diligence: The Key To Sustainable M&A Transactions
AAB / Blog / Pension Peril For Higher Earners – Beware Of The Tapered Annual Allowance
BLOG30th Mar 2017
You may be in line for unexpected income tax if pension contributions are made and your total annual income and employer pension payments add up to more than £150,000.
Since 6 April 2016 tax relief on pension contributions is subject to a Tapered Annual Allowance that reduces the normal £40,000 Annual Allowance to as low as £10,000 for certain individuals.
The purpose of the Tapered Annual Allowance is to reduce the amount of tax relief that higher earners can claim on pension contributions by reference to their income.
Persons affected
For those with an ‘adjusted income’ of over £150,000 the Annual Allowance is tapered by operating a £1 reduction for every £2 of adjusted income above £150,000, subject to a £10,000 floor. These rules apply to individuals who have ‘adjusted income’ over £150,000 and have ‘threshold income’ of over £110,000.
In simple terms;
‘adjusted income’ means all taxable income and benefits plus all pension contributions
‘threshold income’ means all taxable income and benefits, less personal pension payments, and without adding back in any employer pension contributions.
Income given up under salary exchange agreements set up after 8 July 2015 are added back for this purpose.
Example
Peter received salary and dividends in 2016/17 of £130,000. He made gross pension contributions of £15,000 and his employer also contributed £25,000, a total of £40,000.
His threshold income is £115,000 (£130,000 less £15,000)
His adjusted income is £155,000 (£130,000 plus £25,000)
Peter’s threshold income exceeds £110,000 and his adjusted income exceeds £150,000. His Annual Allowance is therefore reduced by £2,500 to £37,500 ((£155,000 less £150,000)/ 2). Peter is liable to pay income tax of £1,000 (40%) and must report this on his 2017 Tax Return.
Carry Forward Relief
If pension contributions for the current year exceed the Tapered Annual Allowance then any unused Annual Allowances from the three prior tax years may be used.
Income predictions
Even where income is not expected to exceed £150,000 p.a. on average, a number of variables can make it difficult to predict when planning pension payments, such as;
Careful Planning
The rules are complex and there will be those already caught by them but have yet to realise.
Be proactive. Seek professional advice if needed to ensure that your income tax and pension planning are fully co-ordinated, consistent with your financial objectives, and avoid unexpected pitfalls.
If you would like to discuss your pension tax planning please contact Lynn Gracie, Tax Senior Manager (lynn.gracie@aab.uk) or your usual AAB contact.