This represents an amount in excess of the new £40,000 limit being introduced in April 2014 of £895 million.
The statistics, which looked at those people that contributed to a UK registered pension in the 2011/2012 tax year, showed that the average contribution of those that would have broken the new threshold was £95,000. The new rules, set to be introduced in April 2014, will potentially catch many savers off-guard and Kuber Ventures is calling on anyone who might be tripped up by the change to the threshold to seek alternative options.
Dermot Campbell, Managing Partner at Kuber Ventures, said:
“The annual allowance change is most likely to affect 40-60 year olds at the peak of their earning career who have surplus income now that their children have flown the nest or mortgages have been repaid. This brief window is often the only period in a person’s life when they can make meaningful savings. Tax efficiency is imperative to ensure that these hard earned savings are not eroded by current excessive tax rates.”
One alternative is the Government’s Enterprise Investment Scheme (EIS) which offers an ideal supplement to pensions. The EIS is an opportunity to invest tax efficiently in private companies and can provide long-term tax efficient growth.
The Government initiative offers a plethora of benefits including capital gains deferral for the life of the investment, an exemption from Inheritance Tax after two years and 30 per cent upfront Income Tax relief which can be carried back to the previous tax year.
The current £50,000 annual allowance limit was first introduced in the tax year of 2011/2012, coinciding with the ability to carry forward unused relief from up to three previous tax years. Many individuals will now have fully utilised their previous year’s carry over option and therefore need to seek alternative tax efficient savings options.
Campbell continued:
“In 2012, individuals who went over the annual allowance threshold did so to make use of the newly introduced carry forward feature. Many of these people will now have fully exhausted this option and so will find themselves limited by the new threshold.”
“Traditionally, people have focused on maximising their ISA allowance first, followed by reaching the tax free threshold on their pension, before finally utilising the carry forward facility. However, if the latter is no longer available, then a compelling alternative is to invest in EIS.
“The continual noise surrounding restricting or taxing the lump sum on retirement is reducing people’s confidence in traditional pensions. Those set to fall foul of the reduction in annual allowance should take heed of the warning signs and look to find a new home for their money.”
