Look out for HMRC anti-forestalling rules

If you invest a pension contribution in excess of your special annual allowance, you could lose up to 12.5% of the payment if you take a contribution refund.

This was the warning issued by SIPP provider Suffolk Life this week.

Where high earners are caught up in the HM Revenue & Customs anti-forestalling rules and have made contributions in excess of their special annual allowance, they will be penalised for taking a contribution refund rather than leaving the money in the pension scheme.

Commenting on the story in FT Adviser, Informed Choice chartered financial planner Martin Bamford said:

“This highlights the importance of independent financial advice when it comes to pensions.

“Pensions have never been simple and the anti-forestalling measures add an additional layer of complexity.

“Where we have seen examples of individuals falling into this trap, it has been where they thought they understood the rules and proceeded on their own without advice.

“Any individual who has this level of earnings needs to be working with an appropriately qualified and experienced IFA to make sure they do not fall foul of the rules. Getting this wrong can prove costly.”

The anti-forestalling rules were brought in to cover the 2009/10 and 2010/11 tax years. They cover individuals with £130,000 or more of ‘relevant income’ and restrict the amount of higher rate income tax relief available on pension contributions.

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