Check pension input time to avoid charges
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Skandia is warning IFAs to review pension input periods to prevent clients being hit with tax charges when pension tax relief rules change.
The Government is proposing to reduce the annual allowance for tax relief on pension contributions to between £30,000 and £45,000 from next April, down from its current limit of £245,000.
Skandia head of proposition Colin Jelley says this could affect anyone paying significant amounts into a pension this year because of the time periods used for calculating pension tax relief.
Pension input periods are calculated from when the first contribution was made into a money-purchase pension after A-Day and the period then normally runs for 12 months.
Jelley says clients could face an unwelcome tax charge if they have an input period which ends after April 2011 and they breach the new, lower limits. But he says it is easy to avoid a potential tax charge by choosing to end the current pension input period early, ensuring tax relief is assessed against this year’s rules for pension tax relief, and urges IFAs to identify when it may be an issue.
Jelley says: “It is critical to identify clients who may be affected if the legislation changes and ensure that they take the necessary steps to avoid these pitfalls.”
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