Recent figures published by Her Majesty’s Revenue & Customs (HMRC) have shown that the level of money paid in tax charges by individuals exceeding either the Annual or Lifetime Allowances have significantly increased since their inception in 2006.
In the 2016/17 tax year £561 million was paid in tax charges as a result of individuals exceeding the Annual Allowance. By comparison in 2006/07, when the Annual Allowance was introduced, the amount of tax charges levied against those exceeding the limit was just £2 million.
It is a similar story with regard to the Lifetime Allowance, also introduced in 2006, with tax charges levied against those exceeding the limit in 2016/17 amounting to £102 million, a 20-fold increase from the £5 million levied in 2006/07.
Commentators are attributing the cause of this substantial rise in tax, paid over little more than 10 years, to the fact both the Annual and Lifetime Allowances have been significantly reduced over this timeframe.
The limits for the 2018/2019 tax year are £1.03 million in respect of the Lifetime Allowance and £40,000 in respect of the Annual Allowance. For individuals who have taxable earnings in excess of £110,000 per annum or have taken advantage of the ‘Pensions Freedoms’ introduced by the Government in 2015, the maximum they can save towards a pension will be further reduced.
If you believe you may exceed either of these limits you should consider getting financial advice. You can find details of appropriately qualified advisers in your area by visiting www.unbiased.co.uk.