Pension premium relief for the self-employed

This note has been prepared to summarise the rules which exist to the end of 2010/11 tax year (ends 5 April 2011) and which will come into effect for 2011/12 onwards.

Rules applying to the end of 2010/11

For 2009/10 and 2010/11, premiums fall into two categories:

1. Regular premiums, which are those paid at intervals of no more than quarterly and at the frequency and rate as at 22 April 2009.

2. Irregular premiums, which includes any additions to regulars over the 22 April 2009 rate as well as premiums paid at more than quarterly intervals.

While tax relief on regular premiums is secure (subject to conditions), the position on irregular premiums is more complicated. There is a “special annual allowance” (SAA) which may or may not entitle you to tax relief.

Rules in effect from 2011/12

For 2011/12 we move away from the special annual allowance and revert instead to the annual allowance, reduced from £255,000 to £50,000. The rule is that the Annual Allowance is applied against contributions made in the PIPs (Pension Input Periods) ending in the tax year.

Unused relief carry-forward

Premiums paid in the PIPs ending in the preceding three tax years must also be considered to decide whether there exists any unused relief to bring forward.

For more information on the existing rules and those coming into effect from 2011/12, please read the full pdf insight.