New Pension Rules – The Downside


New pension rules came into effect on 6 April 2015 which have brought many welcome changes. But what about the changes which are not so good? Careful consideration needs to be made with regard to how the changes may affect you.

The most significant change is probably the removal of pension funds from Inheritance Tax. This, together with the ease with which tax relief can be lost, means that individuals will need to seek financial advice.

So what are the pitfalls?

Certain events, including a payment from a flexi access draw-down, will trigger the “money purchase annual allowance rules”. Triggering these rules will reduce the annual allowance on which pension tax relief can be claimed from £40,000 to £10,000 and will also result in the loss of any unused relief from earlier years. Clearly, if you intend to make pension contributions in excess of £10,000 in future years, you will need to take financial advice before making any alterations to your existing pension provisions.

From the age of 55, you used to be able to take 25% of your fund tax-free but under the new rules you are able to draw the whole of the remaining fund in one lump. This will be taxed as income and could push you into the higher rate tax bracket or even worse push your income to such a level that the personal allowance is no longer due. Careful consideration needs to be given to when and how much income is withdrawn at any one time in order to minimise the amount of tax due.

If you spend all your pension savings in the early years, you could run out of money long before you anticipated. This could also be the case if the fund does not perform as well as expected. Again financial advice needs to be taken before any decisions are made.

Please contact Green & Co for further information.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of Steafpong at

Thinking of investing in large Plant and Machinery?

Take advantage of the Temporary Annual Investment Allowance Increase

Back in Autumn 2012, the chancellor made a surprise announcement to increase the maximum amount of annual investment allowance (AIA) from £25,000 to £250,000 from 1st January 2013 for a temporary period of 2 years. (Following which, the allowance limit will drop back down to £25,000 from 1st January 2015).

The AIA gives a 100% tax relief for the cost of qualifying plant and equipment, up to a capped annual limit -now £250,000.

HMRC have estimated that this accelerated tax relief measure will benefit 90,000 businesses, spending over £25,000 a year on qualifying plant and machinery. The increase in capital allowances will provide a cash-flow benefit, likely to be of help to small and medium sized businesses which will stimulate the growth of the economy.

It is important to determine the optimum time to make your investment so you receive the highest amount of tax relief available –as the annual allowance is allocated according to the date of expenditure and the accounting period in which it falls into. If your accounting period is 1st January 2013 to 31st December 2013, the full £250,000 applies. But if your business has an accounting period different to this, the allowance will be proportioned and the calculation is slightly more complicated. For example, if your business has a yearend of 31st March 2013, you will need to split the allowance between your accounting period, as follows:

1st April 2012 – 31st December 2012 = £25,000 x 9/12 = £18,750

1st January 2013 – 31st March 2013 = £250,000 x 3/12 = £62,500

In this accounting period, the business will be entitled to a maximum AIA amount of £81,250; however the expenditure must be spread over those two periods to gain the maximum advantage.

You will also need to remember to apportion your AIA again when this temporary £250,000 limit ends and your accounting period straddles the 1st January 2015.

Any qualifying expenditure exceeding the AIA annual limit is also entitled to further tax relief (known as ‘Writing down allowance’) at an annual rate of 18% or 8%, depending on the nature of the item purchased.

Please note the following items that do NOT qualify for AIA:

  • Cars
  • Plant and machinery previously used for another purpose, E.g. a computer used at home and introduced into your business
  • Plant and machinery gifted to your business
  • Expenditure incurred in the accounting period in which your business ceases

Whilst the government gave us little time to prepare for this, if your business is looking to grow and invest now is the time to take advantage. Before purchasing, please check how and when this will affect you. Of course, this has to fit within your business thinking and only if you have the available finance.

For further information and advice please contact us or check out HMRC’s guidance on their website