Annual Allowance
The Annual Allowance is the amount by which the value of your pension
savings can go up in any year before you have to pay tax at 40%. The Annual
Allowance is £215,000 for tax year 2006–2007.
The new tax rules set out how the value of the increase in your pension
savings is to be worked out. Any increase in pension must be multiplied by
10. For example if a person’s pension rights at 6 April 2006 is £10,000 and
at 5 April 2007 it is £13,000,the increase in value of the pension is
£30,000 (£3,000x10) which is well within the Annual Allowance of £215,000
for that year. Any contributions paid into a personal pension arrangement
(such as a stakeholder pension), or money purchase arrangement (such as the
CSAVC) will also use up some of the Annual Allowance.
You must decide whether you have exceeded the Annual Allowance. If you
have, you must tell HM Revenue and Customs and pay any tax due on the
excess.
