As the end of the current tax year approaches, consideration may be turning to making contributions into a SSAS. If so, now is an appropriate time to check that any contributions already paid, or that are planned to be paid before the end of the tax year, are within the relevant limits.
1. Annual Allowance (AA)
The AA legislation is complex and particularly so for those with “high income”. However, what contributions are paid and when are facts which can be measured and monitored to avoid unexpected tax charges.
2. Action for members
If contributions have been paid, members need to check whether those contributions are within their Annual Allowance (AA). If not, they may be subject to a tax charge (which they need to calculate, pay and declare to HMRC through their personal tax return).
The standard AA is £40,000 for 2020/21, but for some their AA could be a lot lower.
For example, those with “high income” - broadly income from all sources assessable to UK income tax of £200,000 or more – may be affected by the “tapered Annual Allowance” which could reduce their AA to as low as £4,000. Further details of the tapered Annual Allowance are provided in our latest SSAS update – click here to read the update.
In addition, the “Money Purchase Annual Allowance” (MPAA) also applies to those who have started to draw their pension flexibly (for example via a method of drawing benefits technically known as “Flexi-Access Drawdown”). The MPAA is £4,000 pa.
Where a member exceeds their AA in a tax year, they may still not be liable for a tax charge for that year as they can carry forward unused AA from the previous three tax years and add it to the current year’s AA. Thus, it may be possible to make occasional large amounts of pension savings without having to pay a charge.
The AA applies per individual, not per pension arrangement, so members will need to add up all their contributions paid to all their pension schemes (which also includes pension savings into a “defined benefit” arrangement).
3. Action for trustees
If contributions paid to the SSAS for any member exceed £40,000, the Trustees are required by legislation to provide them with a “Pensions Savings Statement” by 5 October following the end of the tax year. That statement must contain certain information for members and is required even if there is no AA tax charge due (for example, if the member is using any carry forward provision).
4. We are here to help
In addition to issues around the Annual Allowance, you may need to address some of the following questions before deciding what contributions to pay:
- If it is a company contribution - is the contribution commensurate with salary?
- If it is a member contribution - how will the tax be reclaimed?
- Will the member be affected by the Lifetime Allowance?
We can assist Trustees to help members work out their AA position or to help with any of the questions above – please contact Patrick Moriarty for further details of our services for SSAS trustees.