How the pensions annual allowance works

What is the annual allowance charge?
October 2019

Barry Foster

Vice President,
Strategic & Technical Sales

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Risk Disclaimer

This content is based on our understanding of legal and tax regulations and practice at the time of writing (October 2019). It has been produced for information only. We do not provide tax, accounting, regulatory or legal advice. No action must be taken or refrained from being taken based on this content alone.

Key takeaways:

  • Understand the voluntary scheme payment of annual allowance charge
  • Learn how the annual allowance charge is calculated

What is the annual allowance charge?

The annual allowance tax charge arises if a member’s pension input amount (contributions in respect of money purchase arrangements) are in excess of the available annual allowance for the tax year.

From 6 April 2011 a tailored tax charge at an ‘appropriate rate’ has applied – this means a tax on the excess is charged at the individual’s marginal rate of income tax.

The excess over the annual allowance is simply added to an individual’s taxable net income to arrive at a total income figure subject to tax.

How does this work in practice? Download our case study and explanation.

Risk Disclaimer

This content is based on our understanding of legal and tax regulations and practice at the time of writing (October 2019). It has been produced for information only. We do not provide tax, accounting, regulatory or legal advice. No action must be taken or refrained from being taken based on this content alone.