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Using overlap relief to avoid pension tapering

Pension tapering applies for "adjusted income" over £150k. How does overlap relief affect this?

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My client changed his accounting date to utilise some overlap relief. He has an 18 month accounting period this tax year. His trading income over the 18 months is £180,000 and he has £60,000 of overlap relief he would like to utilise now (6/11 of overlap profits of £110,000 in early years). He wants to be sure he will not be caught by the pension contribution tapering rules on income of over £150,000. Is his income for pension contribution purposes £180,000 or is it £120,000 - being trading income over the 18 months less the overlap relief?

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By Matrix
30th Oct 2019 07:35

His self employed income is £120k so this is the net income and you need to work out the threshold income and adjusted income too.

I assume you have checked that he can prepare accounts for an 18 month period (or is it 12+6? What was the Rupert Grint case, think it was longer than 18 months so not in point?).

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By JohnToppin
30th Oct 2019 09:41

Thank you. Yes he has not change his accounting date before so this is the first time and it is 6 months later than his previous accounting date so making 18 months in total.

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Replying to Matrix:
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By lionofludesch
30th Oct 2019 12:09

Matrix wrote:

His self employed income is £120k so this is the net income and you need to work out the threshold income and adjusted income too.

I assume you have checked that he can prepare accounts for an 18 month period (or is it 12+6? What was the Rupert Grint case, think it was longer than 18 months so not in point?).

Rupert was 20 months. 18 would be fine. But, as you say, any doubt can be resolved by producing accounts for 12+6 instead of 18.

Taking overlap relief isn't a choice. Once the decision has been taken to extend the period to 18 months, overlap relief is mandatory.

It doesn't seem to be making much difference to his assessable profits. His overlap relief equates to £10000 a month and his current profits are £10000 a month. Assuming these are earned evenly over the period (which, admittedly, is a big assumption), there'll be a negligible effect on his assessment.

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