The government is increasing the point at which the £40,000 annual pension allowance starts to reduce for higher earners by £90,000. The threshold income, which is broadly net income before tax excluding pension contributions, is increasing from £110,000 to £200,000 and the adjusted income, which is broadly net income plus pension accrual, is increasing from £150,000 to £240,000.
At present, those with adjusted incomes above £150,000 have their pensions annual allowance of £40,000 reduced by £1 for every £2 that the adjusted income exceeds £150,000, to a minimum annual allowance of £10,000. This has meant that those earning £210,000 or more could not put more than £10,000 a year into pensions.
Now the annual allowance will only begin to taper down for individuals who have an adjusted income above £240,000. However, the annual pensions allowance will now taper down further than £10,000 so that those with an adjusted income over £312,000 will only be able to put £4,000 a year into pensions.
The measure will take effect for the 2020-21 tax year and will be effective for benefits accrued on or after 6 April 2020.
The lifetime allowance for pensions, meanwhile, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase in line with consumer price index (CPI) inflation to £1,073,100 for the 2020-21 tax year.
The amount you can make each year in capital gains before you pay capital gains tax (CGT) is also increasing in line with CPI inflation next month from £12,000 to £12,300.
The government is also increasing the amount that you can save into a junior individual savings account (Jisa) or child trust fund (CTF) by more than double the current level of £4,368 to £9,000 in the 2020-21 tax year.
| Pensions annual allowance changes | ||
| Adjusted income (£) | Annual allowance from 6 April (£) | Current annual allowance (£) |
| 150,000 | 40,000 | 40,000 |
| 160,000 | 40000 | 35,000 |
| 170,000 | 40000 | 30,000 |
| 180,000 | 40000 | 25,000 |
| 190,000 | 40000 | 20,000 |
| 200,000 | 40000 | 15,000 |
| 210,000 | 40000 | 10,000 |
| 220,000 | 40000 | 10,000 |
| 230,000 | 40000 | 10,000 |
| 240,000 | 40000 | 10,000 |
| 250,000 | 35,000 | 10,000 |
| 260,000 | 30,000 | 10,000 |
| 270,000 | 25,000 | 10,000 |
| 280,000 | 20,000 | 10,000 |
| 290,000 | 15,000 | 10,000 |
| 300,000 | 10,000 | 10,000 |
| 310,000 | 5,000 | 10,000 |
| 312,000 | 4,000 | 10,000 |
| Source: Canada Life | ||
