Important information regarding the Money Purchase Annual Allowance (MPAA)
We refer to the money purchase annual allowance as £4,000 for tax year 2017/18 as the government has stated that it is their intention to reduce the MPAA down from £10,000 to £4,000 from 6th April 2017.
The government previously removed the change to the MPAA from the Finance Bill 2017 due to the general election held in June 2017.
However, the government has said that there has been no policy change and that it will legislate for the provisions it removed from the Finance Bill at the earliest opportunity – this is expected as part of the Finance Bill that will be introduced to Parliament in the autumn.
The level of MPAA for the current tax year (2017-18) is therefore uncertain because until the new Finance Bill is introduced and becomes an Act, the government could change their approach.
Our current understanding is that the change will be backdated to 6th April 2017. Therefore it may be a good idea to assume the MPAA will be £4,000, because if you go above £4,000 in the current tax year and the reduction is applied retrospectively, you may incur an annual allowance tax charge.
If the reduction does not go ahead or is not applied retrospectively then the MPAA for tax year 2016/17 would be £10,000.