Pension money purchase allowance reduction 2017-18

One of the measures announced in the March 2017 Budget was the reduction in the annual Money Purchase Allowance (MPAA) from £10,000 to £4,000. This measure was subsequently dropped from the pre-election Finance Bill, but as expected, has now been included in the second Finance Bill of 2017 published earlier this month. Once the second Finance Bill receives Royal Assent, this measure will have effect from 6 April 2017.

The MPAA effectively stops an individual accessing a money purchase pension arrangement to divert their salary into their pension scheme, gaining tax relief, and then effectively withdrawing 25% tax-free. The reduction in the MPAA to £4,000 further restricts the amount of tax relieved contributions that can be made by an individual.

The government has indicated that this measure has been put in place to prevent inappropriate ‘double tax relief’ by those aged 55 and over who have already taken money from their pension pots. The change reduces the amount of pension savings that can be recycled to take advantage of tax relief, which is not within the spirit of the new flexible pension rules.

Planning note

These changes will also affect the available options for those who have already started drawing a pension to add more than £4,000 per year to their pension pots. We recommend that you take pensions and tax advice if you are affected by these changes.

Posted in Pension

Exeter Accountant MJ Smith & Co

Celebrating 25 years of excellence.

Free 1st Meeting
Fixed Fees
Free Support!

Find out more

Client Portal Login: Onvio

Forgot Password?

Latest News

Last chance to claim enhanced capital allowances

There is a special scheme known as the enhanced capital allowances (ECA) scheme for energy-saving technologies. The ECA scheme enables …
Read More

Waivers of remuneration

A waiver of remuneration happens when a director or an employee gives up their right to salary or other cash …
Read More

Furnished holiday let qualifying tests

The furnished holiday let (FHL) rules allow holiday lettings of properties that meet certain conditions to be treated as a …
Read More