In our monthly updates for May, June and July of this year we detailed the Government’s intention to restrict tax relief for high earners with effect from 6 April 2011. New rules were introduced under the Finance Act 2009 which will remove any advantage to high-earning individuals of increasing their contributions before 2011 in excess of their normal pattern and thus benefiting from the higher tax relief while it is still available - the “anti-forestalling” provisions.

HM Revenue & Customs (HMRC) has now published guidance on the anti-forestalling measures which explains in more detail the circumstances in which individuals can rely on protection from the special annual allowance and how that protection may be lost. Areas covered include:

  • what HMRC will consider a “material change” in the rules of a defined benefit scheme and how HMRC will evaluate discretionary benefit increases;
  • the treatment of contributions into defined contribution (money purchase) schemes that vary under promotion or age-related scales or fluctuate according to bonus payments;
  • how inadvertent failures to pay contributions may affect protection; and
  • the use of employer-financed retirement benefit schemes for tax avoidance purposes.

The finalised guidance will be included in the Registered Pension Schemes Manual during October 2009 but is available now at the link below.

View the Guidance for the Special Annual Allowance.