A tapering opportunity

Although the pensions landscape has not changed too drastically since the introduction of “pensions freedoms” in April 2015, many individuals are still coming to terms with what the changes mean in practice. It is perhaps unsurprising, therefore, that most savers also remain in the dark about the extremely complex annual allowance taper, introduced just one year later, albeit with much less fanfare. The tapering rules specifically target those with high levels of income, who will potentially see their pensions annual allowance reduced from £40,000 to just £10,000. 

Perhaps one of the reasons why the taper has not been more widely appreciated is the fact that individuals have been able to carry forward unused annual allowance from the previous three tax years, to offset against contributions in the current year. Accordingly, many of those caught by the tapering rules have managed to avoid a tax charge so far.   

However, it is worth noting that the 2018-19 tax year will be the last chance for those individuals to take advantage of this more significant carry forward, as the window of opportunity to rely on the £40,000 annual allowance from the 2015-16 tax year closes, and the full effect of the taper is felt. If you think you may be impacted by the annual allowance taper, action should be taken now to utilise any allowance remaining from previous years, and to ensure that an unexpected tax charge is not triggered during 2019-20.   

Kirsty Thomson, Dip PFS, LLB (Hons), Dip LP