Top earners could be hit with unexpected tax
Radical changes to pension schemes being introduced by government from 6th April 2016 could leave high earners with unexpected and unwanted tax bills of up to £13,500 warns Secondsight.
From 6th April 2016, the annual allowance will be tapered from £40,000 for those with earnings of £150,000 or more down to £10,000 for those with income of £210,000 or more.
Income will no longer just be comprised of someone’s salary, it is ‘adjusted’ to include employer pension contributions or any other income including savings, bonuses or even an individual’s buy-to-let property rental – taking many more people into a higher earnings bracket. The annual allowance will reduce by £1 for each £2 of adjusted earnings above £150,000 until it reaches £10,000.
Another major change is the reduction of the lifetime allowance from £1.25m to £1m. After April 2016, anyone who breaks through the £1m threshold may be liable to 55% tax on any amount over the limit if the excess is taken as a lump sum. If any of the excess is instead taken as income, the tax charge is 25% although the income itself will still be subject to income tax at the recipient’s marginal rate.
Laverty says, “Many businesses and individuals are completely in the dark about the enormity of these changes and won’t realise how many people will actually reach the lifetime allowance cap.“