The Finance Act 2009 received Royal Assent last night.

Anti-forestalling: a recap

From April 2011, for individuals with income of £150,000 or more, tax relief on pension contributions is to be tapered downwards so that it falls to 20% for those with income over £180,000. The promised consultation on this change is still awaited.

The Act contains "anti-forestalling" provisions intended to prevent individuals likely to be affected by this change from making "substantial additional pension contributions" between Budget Day (22 April 2009) and April 2011. The proposals outlined in the Budget were that if an individual with income above the £150,000 threshold changes their normal pattern of pension contributions and their pension savings exceed £20,000 per tax year (the "special annual allowance"), tax relief on those savings will only be at the 20% basic rate.

"Pension savings" for these purposes are all savings in registered pension schemes, whether made by the individual, on their behalf or by their employer, including benefits accrued in DB schemes and all contributions made to DC arrangements. The pre-Budget Day normal savings patterns which are protected are, broadly speaking, DB benefits (where there has been no material change in the rules of the scheme) and DC contributions paid on a quarterly or more frequent basis.

Further details were set out in our Law-Now on the 2009 Budget.

So what is changing?

During the passage of the Bill there was significant feedback on the proposals, much of it negative. In the House of Lords debates earlier this week one member was moved to say that he had "rarely heard such unanimous, persistent and outspoken criticism."

One key concern was that for individuals making defined contributions, no provision was made to protect regular contributions made less frequently than on a quarterly basis. This has been addressed by an amendment stating that for contributions made less often than quarterly over the past three years, the special annual allowance will be increased from £20,000 to the average of those contributions, but capped at £30,000. This will assist high earners who are self-employed or who in practice make annual, often variable, contributions.

Despite the clamour from industry there have been no other material changes to the provisions, although the Government has not ruled out further changes by way of regulations. In particular, it has said that it is still considering representations on increased flexibility for individuals who change provider, and on the possibility of "less stringent" rules for those people who had set up new pension arrangements just before Budget Day and who might inadvertently have been caught by the new rules.

Guidance from HMRC

Guidance from HMRC will be important in interpreting the law. In addition to a suite of documents originally issued in April on the draft legislation, HMRC has recently issued some new Questions and Answers.

The Q&As provide examples of how HMRC will determine to what extent contributions are part of a "regular" pattern of contributions. They also say that where benefits are increased on or after 22 April 2009 by a discretionary power HMRC will not regard it as a material change in the rules for these purposes, so long as the power is being used in the same way it was exercised before that date.

Summary

The changes made to the anti-forestalling provisions since the Finance Bill was published are more limited than had been hoped by many, although Government has clearly not ruled out further tweaks. However, the statutory wording remains complex, and is untested. Now that it is in place, those for whom anti-forestalling may be relevant should consider their position, and where necessary seek further advice.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 22/07/2009.