Budget Announcement – Change to the Tapered Annual Allowance from April 2020

Amongst Rishi Sunak’s huge budget giveaway on 11 March came a welcome relaxation of the Tapering rules concerning Annual Allowance tax.  Currently the Threshold Income (basically taxable income) limit is £110,000 and the Adjusted Income (taxable income plus pension growth) limit is £150,000.  From April 2020 those limits will be increased to £200,000 and £240,000 respectively.  That will be a relief for many of our clients as they would have fallen foul of the lower limits, but will not exceed the new ones.

A worked example may assist (assumes no unused allowances available from earlier years):

  Old limits pre-budget New limits from April 2020
Taxable income after pension relief £135,000 £135,000
Add pension growth for the year £40,000 £40,000
Adjusted income £175,000 £175,000
Excess over £150,000/£240,000 £25,000 Nil
Reduction £1 for every £2 excess £12,500 Nil
Allowance available £27,500 £40,000
Taxable £12,500 Nil
Tax due 40% £5,000 Nil

As you can see, the change has eradicated the charge altogether in this case, but that will not be the same for everyone and some charges will still arise.  Together with the expected flexibility to pension specific percentages of pay from April 2020, busy doctors can breathe a little easier!

There is a slight sting in the tail though.  Up to 5 April 2020 the minimum that the Annual Allowance could be tapered to is £10,000.  From April 2020, however, this has been reduced to £4,000.  This will only affect very high earners.  For the limit to reduce below the current minimum of £10,000, adjusted income (taxable income plus pension growth) would need to be above £300,000, and only a very small number will fall into this category.

Lifetime Allowance

There has been an inflationary increase to the Lifetime Allowance for 2020/21 to £1,073,100.

For any help on the above, please do not hesitate to get in touch with with Dave Walker on
01253 404404.