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Tapered allowance threshold set to rise

9th March 2020

Speculation is mounting that Chancellor Rishi Sunak has a solution up his sleeve to fix the doctors' pensions row in this week's Spring Budget.

Savers can pay up to £40,000 a year into their pension, with savings that breach this threshold taxed at an individual's marginal rate of income tax.

Those who earn more than £110,000 a year risk having their tax-free annual pensions allowance tapered from £40,000 to £10,000.

However, the Financial Times reports that Sunak will raise the point at which the tapered annual allowance kicks in from £110,000 to £150,000.

Income exceeding £150,000 would still be caught by the taper in 2020/21, but it should be easier for some high earners to avoid it.

Specifically, those with an income of between £110,000 and £150,000 and with other income, from pensions and investments, stand to benefit.

The taper gradually reduces the annual pensions allowance for those on threshold incomes of £110,000 and adjusted incomes of £150,000 to £210,000.

This means they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.

Should Sunak announce the measure on 11 March, £1 of annual allowance will be lost for every £2 of adjusted income above £150,000 a year.

Steve Cameron, pensions director at Aegon, said:

"The tapered allowance has seen an increasing number of senior NHS professionals facing unexpected tax bills, with some running to six figures.

"Indications are that removing the taper would be too costly but instead, the threshold when it kicks in will be raised.

"This may reduce the number of individuals facing a tax penalty, but the rules are highly complex and many will still fear being caught out."

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