The measure

The Chancellor announced in his April 2009 Budget that, from 6 April 2011, higher rate income tax relief for pension contributions would be removed for those with incomes in excess of £180,000 and would be tapered away for those with incomes between £150,000 and £180,000.

In order to prevent individuals from pre-empting this measure by increasing their normal pension savings and obtaining full higher rate tax relief before the new rules came in, 'anti-forestalling' measures were introduced with effect from 22 April 2009; those with 'relevant' income of at least £150,000 in 2009/10 or 2010/11, or either of the preceding two tax years, are subject to a clawback of higher rate tax relief where they increase their pension contributions above the amount they were previously paying on a regular basis, and their total contributions exceed £20,000 in the tax year (or in some cases £30,000). The clawback is made by way of a special annual allowance charge of 20% in the current tax year and 30% next year.

The measure announced today reduces the relevant income threshold at which the anti-forestalling rules apply from £150,000 to £130,000 per annum.

Who will be affected?

Individuals who previously expected to fall outside the anti-forestalling rules, because their relevant income fell below, or was expected to fall below, the £150,000 threshold in all tax years 2007/08 to 2010/11 inclusive, will now potentially be caught if:

• their relevant income in one of those years is at least £130,000;
• additional pension savings are made over and above their current normal ongoing regular amounts; and
• the total pension savings made by them or on their behalf exceed £20,000 (or £30,000 in some cases).

When?

The widening of the anti-forestalling net takes effect from today. It will not apply to those with an existing pattern of normal ongoing regular pension savings (ie made at least quarterly), provided these continue to be made at least quarterly and the rate at which they are paid is not increased. These protected contributions will therefore continue to be eligible for higher rate relief.

Pension savings made on or after today in excess of protected amounts will be subject to the special annual allowance charge if the individual's total pension savings for the year (including those made on their behalf, eg by an employer) exceed £20,000 (or, in some cases, £30,000).

Anyone now caught by the rules, having previously been unaffected, will not be charged in respect of any one-off lump sum payments or other non-protected pension savings made before today, however these will eat into their £20,000 (or £30,000) special annual allowance.