Major changes will be introduced to Income Tax and Pensions as from 6th April 2011 
Most of the changes below will take effect from 6th April 2011:

- Both employer and employee NI contribution rates will increase by 1%.

- The personal tax allowance will increase to £7,475 but only for those whose earnings are below £100,000.

- Higher rate tax of 40% will apply to earnings in the £35,001 to £150,000 band whilst the additional rate of 50% will continue to apply to earnings over £150,000.

- A new tax regime on pension contributions (both employee and employer pension contributions) will be introduced. The Annual Allowance will reduce to £50,000.

- Any contributions built up above this Annual Allowance will incur a tax charge at the employee’s full marginal rate of tax. The Annual Allowance includes all tax-relievable contributions you may be making to a registered pension scheme including the Company’s pension contribution.

- If the total payments to all your pension plans are less than £50,000 in one tax year, you will be able to carry forward any unused allowance from the previous three tax years. You will be able to carry forward unused allowance from the years before 2011 i.e. a deemed unused allowance can be determined for 2008/09, 2009/10 and 2010/11 treating the Annual Allowance as if it has always been £50,000.

- Alternatively Secured Pension (ASP) will be abolished on 6th April 2011.

- Unsecured Pension (USP) will be allowed to continue for life, will be referred to as drawdown pension and will be available in two forms:

- - - Capped: as current USP but with income limits equal to 100% of rates set by HMRC and reviewed every three years before age 75 and every year from age 75.

- - - Flexible: from which unlimited drawdowns can be taken subject to a Minimum Income Requirement (MIR).

- The MIR has been set at £20,000 p.a. for individuals.

- - - There will be no capital alternative to the MIR.

- - - The level of MIR is to be reviewed at least every five years.

- - - To meet the MIR, income must come from a lifetime pension: this pension can be level.

- Individuals in ASP or USP on 6th April 2011 will become subject to the new drawdown pension limits from their next review date.

- Lump sum benefits such as Pension Commencement Lump Sum (tax free cash) and Value Protection will not have to be taken by age 75.

- On death of a pensioner in drawdown current options continue to be available.

- The tax recovery charge on death benefits taken as a lump sum will be 55% at all ages once benefits have been crystallised or if death occurs after age 75.

- Contributions to pensions will not receive tax relief after age 75 and there will be a test against the Lifetime Allowance at age 75 regardless of whether benefits have been crystallised at that point.

For further information or if you feel that you will be effected by these changes please contact us .

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