The Budget 2020 announces increase to tax relief pension savings

Welcomed changes will be made to the pensions tax system, as announced in Chancellor Rishi Sunak’s first Budget, in a bid to help high earners including senior NHS dentists and doctors who have been hit with high tax bills.

The thresholds for the controversial tapered annual allowance will rise by £90,000 to ensure dental professionals are not financially penalised. From April 2020, anyone who earns under £200,000 will avoid the taper completely.

People can earn tax relief on their pension, which means that some of the money that an individual would have paid in tax on their income is instead put towards their pension.

However, under current rules the taper system penalises high earners whose adjusted annual income exceeds £150,000 and whose threshold income exceeds £110,000.

It cuts the annual allowance for pension contributions by £1 for every £2 of adjusted income above £150,000. The allowance – the maximum amount of tax relief pension savings that can be saved in a year – stands at £40,000.

On 11 March, Mr Sunak announced that the thresholds would be increased to £200,000 for the threshold income and £240,000 for the adjusted income.
The tapered annual allowance will only kick in for individuals whose threshold income is more than £200,000 and whose adjusted income exceeds £240,000.
Mr Sunak also announced that the minimum rate the nnual allowance can reduce to will be cut from £10,000 to £4,000, affecting those who earn more than £300,000.

For more information on Budget announcements, or to discuss your circumstances,  please contact our Head of EQ Healthcare, Louise Grant, or email healthcare@eqaccountants.co.uk.