RPSM15200020 - Member Pages: Special annual allowance: Overview: What is the special annual allowance charge and will I be affected?

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

What is the special annual allowance charge and will I be affected?

The special annual allowance charge is a tax charge on high earners who are accruing pension benefits under a registered pension scheme, or under a currently-relieved non-UK pension scheme (see RPSM13102320). If your pension inputs are more than your special annual allowance you will be liable to a charge at a rate of 20% (or in 2010/11 at a variable rate of up to 30% - see RPSM15200140) on the value of your pension inputs over your special annual allowance.

You will only be affected if your income is £130,000 or more

You will only be affected by the special annual allowance rules

• in 2009/10 if your relevant income in any one of the tax years 2007/08, 2008/09 or 2009/10 is £130,000 or more
• in 2010/11 if your relevant income in any one of the tax years, 2008/09, 2009/10 or 2010/11 is £130,000 or more.

RPSM15200030 tells you how you work out if your relevant income is £130,000 or more.

If your income in any of these tax years has not been £130,000 or more you do not need to worry about the special annual allowance charge.

When the special annual allowance was introduced at the 2009 Budget on 22 April 2009, it only applied in respect of individuals with relevant income of £150,000 or more, with effect from 22 April 2009.

However, in the 2009 Pre-Budget Report on 9 December 2009, the relevant income threshold was reduced to £130,000. If your income is £130,000 or more but less than £150,000, the special annual allowance will apply to you with effect from 9 December 2009, rather than 22 April 2009.

You can only be liable to the charge if your pension inputs in a tax year are more than £20,000

Everyone has a special annual allowance. Only if your pension inputs are more than your special annual allowance will you be liable to the special annual allowance charge.

The amount of the special annual allowance will be between £20,000 and £30,000 inclusive. There are also special rules protecting regular contributions established before 22 April 2009 (or before 9 December 2009) from the special annual allowance charge.

RPSM15200040 tells you what your special annual allowance is.

The key message is if your total pension input amount is not more than £20,000 in a tax year you cannot be liable to the special annual allowance charge.

Existing pension inputs may be protected from the special annual allowance charge

Where you have been regularly accruing benefits before 22 April 2009 (or before 9 December 2009) any continuing pension input amounts made on the same basis may be protected from the special annual allowance charge. The rules on what amounts are protected are quite complex; RPSM15200100 tells you more about what contributions will not be liable to the special annual allowance charge.

RPSM15103025 gives more details about whether the 22 April 2009 or 9 December 2009 date applies to you.