With the Budget less than a week away, much of the talk is whether Chancellor Philip Hammond will once again turn to pensions to help fund the Government’s NHS spending commitments. Hammond has described tax incentives to save for retirement as “eye wateringly expensive” and therefore it is little wonder that these have again come under scrutiny. In recent years, there have been significant cuts to the annual allowance and the lifetime limit and yet the cost to the Exchequer is still said to be over £40 billion a year. On the other hand, according to the Institute for Fiscal Studies, more than a quarter of all income tax receipts are paid by just 0.6% of the adult population.
A cut in the annual allowance from £40,000 to £30,000 is a distinct possibility and while the vast majority of people will hardly shed a tear for those affected by such a change, any pensions tax hike might still be a mistake by a Tory Chancellor. Proposals to restrict pension tax relief to the basic rate of tax have been described as unfair and “likely to disproportionately distort behaviour”, at a time when we are all being told to save more for our retirement. Currently, pension savers receive tax relief based on their highest rate of tax, which for those earning over £150,000 per year is 45%.
Irrespective of what new measures are introduced, investors are being urged to review their pensions and take steps to protect the allowances that are currently available. If you would like advice on your tax affairs, please contact your Plus Accounting adviser without delay.
Author: Paul Feist, Director, Plus Accounting
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