RPSM15100120 - Technical Pages: Special annual allowance: Basic principles: Examples - no tax due

This guidance only applies for the 2009-10 and 2010-11 tax years.

Examples of the application of the special annual allowance charge: no charge due

The following examples illustrate the basic principles on which the special annual allowance operates.

Example 1

Andrew has a total income of £55,000 in 2007-2008, £58,000 in 2008-2009, £59,000 in 2009-2010 and £60,000 in 2010- 2011. Since his total income is less than £130,000 in all tax years, he is not affected by the special annual allowance.

Example 2

Belinda has relevant income of £138,000 in 2009-2010 and has total individual and employer pension contributions of £15,000 in the year (split equally between Belinda and her employer). Belinda has no other pension input amounts for the year. Although her income exceeds the £130,000 threshold, her total contributions are less than £20,000 so she is not subject to the special annual allowance charge for 2009-2010.

Note, the relevant income is still £130,000 or more even after allowing for a deduction in respect of Belinda’s contributions of £7,500 (see RPSM15101060).

Example 3

Christine has relevant income of £138,000 in 2010-2011 and had relevant income of £140,000 in 2009-2010. Christine makes pension contributions of £24,000 during the 2010-2011 tax year of £2,000 per month to an arrangement set up before 9 December 2009. Although her pension contributions are more than £20,000, they will not be subject to the special annual allowance charge because they only reflect her continuing, regular, pension savings that is a protected pension input amount for the tax year.

Note, the relevant income is still £130,000 or more even after allowing for a deduction of £20,000 in respect of Christine’s contributions of £24,000 (see RPSM15101060).

Example 4

David has relevant income of £140,000 in 2009-2010 and monthly pension savings of £2,000, which is a protected pension input amount. In September 2009 he makes a one-off contribution of £10,000. His total pension input for 2009-2010 is £34,000 ([£2,000 x 12] + £10,000). This is David’s only pension savings in 2009-2010 and the nature of his pension savings to date means his special annual allowance for 2009-2010 would ordinarily be £30,000 (based on the average of the lump sum payments David had made over the period of the previous three tax years).

Though David’s special annual allowance is reduced to nil for 2009-2010 because of the amount of the monthly contributions and one-off contribution exceeding £30,000, the one-off contribution was paid before 9 December 2009 and so is not subject to the special annual allowance charge (and nor is the total amount of the monthly pension savings).