February 2007

PENSION RELIEF FOR HIGH EARNERS

Since 6 April 2005 there is a loophole in the new pensions regime that allows high earners to claim a double helping of tax relief.

The loophole allows you to make the maximum pension contribution for this tax year and then almost immediately put in next year’s allowance to obtain a second set of tax relief which is particularly useful for people with large bonuses or one off gains.

The maximum contribution for the 2006/07 tax year is 10% of your earnings or £215,000, whichever is the lower. This will rise by £10,000 a year until at least 2010/11.

High earners can put away double this maximum because of rules that let you choose your own year-end for contributions.

You could therefore make a gross pension contribution of £215,000 on 1 March 2007 to use up your allowance for 2006/07. You could then nominate to end the year on the same day. Your new year for contributions would then start on 2 March 2007 and you could make another payment on 2 March 2007 of £225,000 for 2007/08.

As a higher rate taxpayer you will be able to claim back 18p on each contribution. So on a contribution of £440,000 you would get tax relief of £176,000.