The well off self-employed will be able to boost their pension provision by up to £128,520 once the ...
The well off self-employed will be able to boost their pension provision by up to £128,520 once the stakeholder regime comes into force in April 2001.
This can be done through a mixture of maximising contribution allowances and reliefs split over the 2000-01 and 2001-02 tax years. It involves maximising the benefits of the forthcoming changes to carry back, carry forward and the personal pension regime. The ability to carry back and utilise carry forward of unused relief is only available until 31 January 2002. The £128,520 is calculated based on the current earnings cap of £91,800, by which an individual can contribute £36,720 to a personal pension in one year.
However, if past relief has not been used this can be carried back to 2000-01 for the same amount. There is also the opportunity for carry forward of unused relief starting in the 1994-95 tax year.
Adrian Walker, pensions communications manager at Skandia Life, said: "In total this could give someone, who has not used their relief, earning at the present earnings cap, a total contribution of £128,520 giving them available tax relief of £51,408."
The new regime, which comes into force on 6 April 2001, is breaking the contributions link to earnings, allowing people to contribute £3,600pa with no net relevant earnings. However, the Government is also allowing someone who had net relevant earnings in the past to contribute at that level for up to six years.
Someone who is self-employed and who earned £60,000 in 2000-01 but earned only £40,000 the following year can, under the new rules, use the £60,000 figure as the basis for their contributions.
Directors not in an occupational scheme, can also use this six year rule to their advantage, especially those who prefer to take their salary as dividends as a tax saving tool.
Walker said: "They could be positioned to take everything as salary in one year and for next five years take all or the majority as dividends, which is marginally more tax efficient. They have then created the ability to fund a personal pension for five years just by doing that one year."
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