Tax Rules on Stakeholder Pensions (introduced 6 April 2001)
Individual may contribute up to £3,600 (gross) per annum regardless of earnings.
This is useful in that it enables those not in work to make pension provision. It is a problem in situations where people with low income in a given year lose the right to that year's allowance or where a person receiving a lump sum, such as an inheritance, is unable to put it straight into a pension scheme.
Contributions greater than £3,600 are allowed so long as they are within the personal pension limits.
This is an extension of the previous personal pension relief rules.
Shares from an approved employee share scheme may be transferred into a stakeholder pension. The market value will be treated as a contribution paid net of basic rate tax.
An incentive for take up of the All Employee Share Ownership Scheme.
All personal pension contributions, including existing pensions, are now paid net of basic rate tax. Employer contributions continue to be made gross.
This change affected everyone paying into self-employed personal pensions. Since 6 April 2001 contributions to self-employed pensions have been paid net of basic rate tax (presently 22%) thus giving tax relief at source.
Carry back relief for personal pension payments changed from 6 April 2001. It is only possible to carry back a premium if it is paid by and the election is made by 31 January following the end of the tax year.
This is one year earlier than previous arrangements.
Carry forward of unused pension relief has been abolished and replaced by a new relief.
The new rules allow the earnings of a single year to be used as a basis for making pension contributions for that year and the following five years. The earnings in any of the five years preceding a cessation may be used for the five years after cessation.
Note that if the individual joins an occupational pension scheme, the right to make stakeholder pension payments without relevant earnings ceases at the end of the tax year in which the individual joins the occupational scheme.
Contact us
This tip sheet is provided to you completely free of charge but if you would like further information please call us now to arrange a meeting.