Pension payments face new limits
TM writes: We have a self-administered pension fund and made a payment into it in the last tax year on April 3, 2006. The amount was according to the rules at that date. Can we make a further payment in the current tax year, according to the new rules that came into force on April 6? Our company financial year runs from the March 1 to February 28.
In theory, under the new pension rules that started this month you will be able to make a further payment into your self-administered pension scheme, writes Chris Lane, a partner at Kingston Smith. The new rules restrict the size of annual contributions – the limit for the current year is £215,000 per individual. This system is much simpler than the previous one. The only problem is that this will mean you will have two payments into your pension scheme in the same accounting year.
Revenue & Customs will be looking closely at situations where owner-managers make large pension contributions that are not commercially justified. The Revenue has issued some guidance on its website, hmrc.gov.uk.
Essentially, if your local inspector thinks the payments are excessive, he will disallow them and you will not get any tax relief on the contributions. These payments would then be treated as personal spending – which would have other tax ramifications.
You should discuss your plans with your professional advisor before you make any payment.