Lee Sharpe looks at restrictions to pension tax relief, primarily the annual allowance and why it can catch out higher earners – and others.
The annual allowance is an income tax charge that effectively ‘punishes’ individuals for making excessive pension contributions. But this is not something that the individual can always control; numerous medical practitioners, such as doctors and consultants, and others in ‘defined benefit’ or ‘final salary’ schemes, are at risk of being caught out by these rules simply by earning more.
This article is intended as a summary of how the annual allowance mechanism works from a tax perspective; while individuals will always be expected to seek guidance from a professionally qualified independent financial adviser, the tax adjustments fall within the scope of their self-assessment tax return.
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