Pensions

Question 1

What are the two types of pensions?

Answer 1

Personal Pension Scheme

Occupation Pension Scheme

Question 2

What are the tax implications for a personal pension scheme when an individual pays in?

Answer 2

Tax relief =
Lower of
Gross contribution paid
Max annual amount.

Max Annual amount = higher of:
£3600 vs 100% of relevant earnings

Relevant earnings = employment income, trade income and FHLA income

Individual sets up a pension and pays in a NET contribution of 80% and HMRC pays 20%.

1. Extension of Basic band by the GROSS contribution paid
2. ANI will be reduced by the gross amount.

Question 3

What are the tax implications for an occupational pension scheme when an individual pays in?

Answer 3

The employee pays in gross contributions to a company scheme

Gross contributions are an allowable deduction for employment income

Question 4

What is the AA?

What happens if an individual exceeds this.

What happens to unused allowances?

Answer 4

£40,000

If exceed income tax is charged on individual as top slice income.

Unused allowances can be c/fwd 3 tax years on a FIFO basis if was in an approved scheme at the time

Question 5

When is an annual allowance tapered?

Answer 5

If adjusted income exceeds £240,000 it is reduced by £1 for every £2 to a minimum of £4000 provided their threshold income is also in excess of £200,000.

Question 6

What is adjusted income?

Answer 6

Net income
+ plus any employee contributions to an occupational scheme
+ plus any employer contributions to either occupational or personal pension schemes.

Question 7

What is threshold income?

Answer 7

Threshold income is net income
LESS individual’s GROSS personal pension contributions.
= Threshold income

Question 8

What are the tax implications when a company pays in to an occupational pension scheme

Answer 8

Allowance deduction against their profits

Exempt benefit for employee (so No Class 1a NIC)

Question 9

What are the benefits on retirement?

Answer 9

• Min age 55
• Defined benefit scheme (OPP) benefits linked to level of earnings
• PPS - Depended on funds accumulated

Question 10

What is the life time allowance charge?

Answer 10

If funds exceed a lifetime allowance of £1,073,100 then excess:

Lump sum - taxed 55%

Pension income tax at 25%

Question 11

On withdrawal what is the Maximum tax free lump sum?

Answer 11

25% x lower of:

• fund value
• £1,073,100

Question 12

Withdrawal of the balance is taxed at?

Answer 12

20%/40%/45%

Question 13

What are the benefits on a pension on death?

Answer 13

Pension can be given to dependants as a lump sum and /or a pension income.

Pensions are outside the scope of IHT but there may be tax charges incurred.