Watch out for the pension tax trap!

When you are deciding what pension contributions to make in any tax year you will also need to take into account whether you have accessed any of your pension savings in that year or in an earlier tax year.

If you have flexibly accessed your pension benefits from a money purchase pension scheme, SIPP or SASS, your pension contributions will need to be restricted from that date onwards (the trigger date)

This restriction is imposed by the money purchase annual allowance (MPAA), which was initially set at £10,000 but reduced to £4,000 on 6 April 2017.

The MPAA restriction does not apply if your pension benefits are taken as:

  • A small pots lump sum
  • A pension commencement tax free lump sum (BUT ONLY WHERE NO PENSION INCOME IS TAKEN AS WELL) or
  • The income comes from a capped draw-down arrangement.


Where the MPAA restriction does apply any contributions paid into a money purchase scheme after the trigger date are checked against the MPAA.

Where those contributions exceed the MPAA, a tax charge will be due.

As 2017/18 is the first year for which the lower MPAA of £4000 applied, more taxpayers are likely to be caught by this tax charge. HMRC has recently set up an online tool to help you clarify whether the MPAA tax charge applies but the accompanying explanation is not easy to follow.

Our pension tax experts can help you clarify whether your client has to pay a pensions tax charge in respect of contributions paid in 2017/18 or earlier.

Find out more with THP Chartered Accountants

For further details pension contributions and MPAA restrictions, contact THP Chartered Accountants with offices in  CheamChelmsfordWansteadSaffron Walden and London City.


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About Jon Pryse-Jones

Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.

An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”

Jon’s appreciation for THP extends to his fellow team members and the board.  “They really know how to run a successful business,” he says.  He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.

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