Will George Osborne cut pension tax relief?
There is a lot of speculation at the moment as to whether George Osborne will reduce pension tax relief in his second budget speech due on 8th July. Those particularly at risk are individuals who earn over £150,000 per annum.
What might happen?
In their election manifesto the Tories suggested that they would look to restrict pension tax relief for those earning over £150,000 per annum. They proposed to achieve this by reducing the annual allowance from £40,000 to £10,000 on a sliding scale, meaning that by the time someone was earning £210,000 or more, they would only have an annual allowance of £10,000 per annum.
This could mean a potential loss of £13,500 in tax.
(The annual allowance is the maximum amount that can be added to a pension in any one tax year, allowing the pension holder to still claim tax relief on those contributions.)
Why is the government thinking of doing this?
In the same election manifesto the Tories stated a desire to remove family homes of up to £1million from the inheritance tax trap. For a couple, inheritance tax will typically be payable on their estate above £650,000 at a rate of 40%. It is a very unpopular tax and quite rightly so. It is planned that the savings made by reducing pension tax relief for high earnings will fund the proposed changes to the treatment of inheritance tax and the family home.
When might we expect the cuts?
The truth is we don’t know, but there is a lot of speculation at the moment that these changes may be announced in the budget speech due on 8th July.
What should you do, if anything?
If these changes are announced on 8th July then there is no guarantee as to when they will take effect. They could be retrospective, but when similar changes have been announced in the past they have either taken effect immediately or from the start of the following tax year.
It would certainly be prudent if you earn over £150,000 per annum and are planning to make a pension contribution of over £10,000 to do so before 8th July since after that date we may have to work to a very different set of rules.
Whatever is announced on 8th July it is important that you are dealing with a firm who is keeping up to date with the constantly changing regulation around pensions and advising you what is best for your particular circumstances.
Mark Christie is Carbon’s Corporate Director and a Chartered Financial Planner. He specialises in working with business owners and their accountants on how best to extract hard-earned profits from their businesses in the most tax-efficient way, then protecting the value of their money once it’s out of the company or setting it to work hard for them again. View Mark’s profile here.
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