Limiting pension tax relief for higher rate taxpayers - Anti-Forestalling Calculator - calculate the whether you could be liable to an additional tax charge.

Click here to launch the calculator

If you have trouble launching the application, try and temporarily enable pop-up windows. Alternatively, use this link.

This calculator works out whether you could be liable for an additional tax-charge based upon your income and level of pension contributions.

In the Budget on 22 April 2009, the Government announced its intention to limit the pension tax relief for individuals with income of £150,000 or over, and in December 2009 this was revised to catch those earnings £130,000 or more. The reason for this change was due to the fact that the government expressed concern that a large proportion of tax relief given on pensions was going to a fairly small number of higher rate taxpayers, so took action to remove this "unfairness". The change will come in force in April 2011, but in order to stop a stampede of high earners putting huge sums into their pensions in anticipation of this change, certain "anti-forsetalling" measures were put in force to prevent this from happening.

The Government introduced rules to apply from 22 April 2009 for the tax years 2009/10 and 2010/11. The purpose of these interim rules was to prevent those potentially affected by the 6 April 2011 changes from seeking to forestall this by increasing their pension savings in excess of their normal regular pattern. However, individuals earning between £130,000 and £150,000 in the last three years who are now caught by these rules will not be taxed upon any additional contributions made between 6 April 2009 and 8 December 2009.

The purpose of this calculator is to work out whether a tax charge could be levied if individuals earning over £130,000 make additional contributions.

Calculating Relevant Income

To work out whether you could be caught by these rules, you firstly need to calculate your "Relevant Income". In order to do this you need to follow a six-step process

Identify total income (i.e. All sources of income, not just earned income, upon which you would normally expect to be charged income tax).
ADD pension contributions paid by the individual which have already been deducted in determining total income (i.e. individual contributions under an occupational scheme paid under the "net pay arrangements")
DEDUCT any allowable income tax deduction and relief other than for pension purposes that are allowed under the Income Tax Act 2007
DEDUCT total individual relievable pension contributions paid in the tax year up to a maximum of £20,000 (Would appear to mean personal contributions to all registered schemes regardless of whether "relief at source" or "net pay arrangement").
ADD any income which individual has given up as a result of a post 22 April 2009 salary sacrifice arrangement (See salary sacrifice section).
DEDUCT the grossed up amount of any gift that qualifies for GIFT AID.

Just to complicate the matter, you also need to check against the £130,000 limit not only in the year a relevant pension contribution is paid but also in the two previous tax years as well. So for a contribution made in the 2010/11 tax year we have to check if the individual had relevant income of £150,000 or more in any of the 2008/09, 2009/10 or 2010/11 tax years.

Special Annual Allowance

The Special Annual Allowance provisions potentially apply to any individual who has relevant income of £150,000 or more and who on or after 22 April 2009 or £130,000 or more after 8 December 2009 has an adjusted pension input amount greater than the special annual allowance. Initially the special annual allowance was to start at £20,000 but this was changed at the last minute, so an additional calculation must be done to work out the special annual allowance.

The SAA is set at £20,000
The enhanced SAA is the average of the irregular contributions paid by, or in respect of, the client in the previous three tax years and is capped at £30,000. For this you need to add all irregular contributions paid by the client and/or his employer in the previous three tax years and divide by three. You must divide by three even if irregular contributions were paid in only one or two years.
The protected pension input amount is the regular contribution (defined as paid quarterly or more frequently) that was in place when the member was first caught under the "anti-forestalling". This means regular premiums in place on 21 April 2009 if caught under the £150,000 threshold or in place on 8 December 2009 if caught under the £130,000 threshold. For this element you need to include benefits accrued in Defined Benefit (Final salary) schemes for the tax year.

Any individual who exceeds the special annual allowance is subject to a charge to income tax on the excess of 20% or 30% depending upon the income tax band applicable to the individual in question.

The special annual allowance does not apply where the arrangement is a defined benefit arrangement with at least 20 members and the taking of benefits was not for the purpose of avoiding the special annual allowance, or benefits are paid due to ill health and the arrangement is either an occupational scheme, a public service scheme or a group personal pension.

The highest of these three elements will represent the amount you and/or your employer can pay, without being liable to the SAA tax charge. Please note that even if contributions are made by your employer, you could still end up facing a tax bill.

For Defined Benefit schemes you can calculate the pension input amount as follows:

Calculate the pension benefit accrued at the beginning of the tax year
Calculate the pension benefit accrued at the end of the tax year
Multiply the difference by 10
If the scheme is an 80ths scheme and tax free cash is accrued separately (not by commutation) add in the tax-free cash for the but do not multiply by ten.

Adjusted Pension Input Amount

This is the amount that determines has been paid over and above normal pension savings. It is when this exceeds special annual allowance that a tax charge is triggered.

Please note that this calculator cannot cover every instance where a SAA tax charge could be made, but should cover most routine pension contributions for high earners. Because this is levied under defined benefit schemes and SSAS arrangements, if there is a "material change to the level of benefits" there could be other obscure instances other than accrual change that could trigger such a charge.

To calculate the adjusted pension input amount you go through the following process:

Determine the total amount of pension savings by, or in respect of the individual, for the tax year. To do this you use the same method as for annual allowance pension input except that the input period is measured over the tax year.

Deduct from the total :
any Pension Protected Input amount (normal pension saving)
any amount of refund lump sum made in the tax year
any amount paid between 6 April 2009 and 21 April 2009.

Protected Pension Input Amounts

This legislation only applies to those who increase their pension contributions before April 2011. Therefore:

Annual and single premium contributions are not protected pension input amounts.
Existing monthly or quarterly contributions are protected, no matter how large they are.
Ad-hoc contributions or changes made between 6 April 2009 and 21 April 2009 are protected.
For those earing between £130,000 and £150,000, the same applied to ad-hoc contributions made before 9 December 2009.

Salary Sacrifice

If a high earning member entered into a salary sacrifice arrangement on or after 22 April 2009 (or 9 December 2009 for those earing between £130,000 and £150,000) any payment made as a result of such an arrangement will be counted as a pension input.

Opinion

These changes, and the subsequent ammendments, mean that these changes were more far-ranging than originally thought, have been difficult to comprehend and added yet another layer of complexity to accruing pension funds.

The figures projected by the calculator are only for guidance purposes - whilst we aim to ensure the accuracy of our calculators, we can take no responsibility for the usage made of the calculations generated on this site.