Chancellor Alistair Darling revealed in the Budget last week that from April 2011, the 40 per cent rate of relief will be tapered down to the basic rate of 20 per cent for incomes over £150,000.
Under interim rules designed to prevent pension investors from maximising contributions before the change, people earning £150,000 or over will only get 40 per cent tax relief on £20,000.
HM Revenue & Customs says its anti-forestalling provisions will apply to savers who increase their pension contributions above their normal pattern of regular saving for amounts over £20,000 a year.
But Beachcroft managing director Richard Hobbs considers the rules are impractical because they assume that all higher-earners have regular incomes.
He says: “Many higher income earners, such as footballers, entertainers and entrepreneurs, have erratic incomes instead of uniform earnings. It is quite reasonable for them to put a hefty whack away if they have had a good year.
“For these clients, there will be no regular pattern of contributions to compare, especially if they are young or have recently become successful.”
Hobbs says it will be difficult for HMRC to ascertain whether these clients are simply saving more when times are good, or trying to dodge paying a higher rate of tax.
He says: “The arrangement is fairly unworkable and has not been thought through about in practical terms.”
Zen Financial Services IFA Mike Pendergast says: “Unless we get clarification from HMRC about how local tax offices judge the motivation of each individual’s pension contributions, it will remain a grey area for advisers.”