Pensions cap changes

The Government announced on Monday that they are amending the controversial anti-forestalling rules for higher rate tax payers...

Since the budget was announced in April of this year, the industry has been lobbying for a change to the anti-forestalling laws that were put in place to prevent higher rate tax payers from contributing large tax-free sums to their pension before the pensions cap comes into force in 2011.

The original law meant that if you did not already contribute regularly to a pension on either a monthly or quarterly basis, then you would only be eligible to receive the full tax relief on the first £20,000 contributed to your pension for the tax year. This severely penalised those making annual lump sum investments.

However, now the Government looks set to relax this rule to allow contributions of up to £30,000 to benefit from the full tax relief until the pensions cap comes into force in April 2011.

From now until 2011, the smaller of either the average of your last three years contributions or £30,000 will benefit from the full tax relief. The reason that the Government has given for the amendment is to enable more people that contribute annually to benefit from the higher rate tax relief available on their full pension contribution.

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