Pension tax relief raise? Act now!
The Conservative party announced during the election campaign that they intend to target higher rate tax relief on pensions for individuals who earn in excess of £150,000 pa. Their justification for the restriction of the tax relief is to fund an additional inheritance tax allowance of £175,000 for the family home.
Following the election, there are already plans for a post election budget in which the pension tax relief could be restricted overnight, this potentially leaves a relatively short period of time in which those whose income exceeds £150,000 can make a pension contribution and benefit from the current tax relief of 45%.
Current Tax Relief
For example a £10,000 investment for a 45% taxpayer will cost effectively as little as £5,500 providing that tax has been paid at the 45% rate. The maximum that can be contributed into a personal pension is £40,000 a year, depending on whether there has been unused relief from the three previous tax years, up to £180,000 could be contributed.
Proposed Tax Changes
The proposed reforms will affect anyone earning over £150,000. The annual allowance is £40,000 pa for those individuals earning up to £150,000. There will be a gradual withdrawal of relief where earnings are between £150,000 and £210,000, with the allowance being reduced by £1 for every £2 of income over £150,000, until such point the allowance is reduced by £30,000 leaving an annual allowance of £10,000.
If you think any of these changes are likely to affect you please contact your local tax partner. Please remember making any pension contributions may affect your lifetime limits and applicable advice should be sought.