Higher-rate taxpayers are being warned to act now or risk losing valuable pension tax relief. Chancellor George Osborne confirmed in his recent Budget speech, that the annual allowance for tax relieved pension contributions will be reduced on a tapered basis for additional-rate taxpayers from Â£40,000 per year to Â£10,000.
Also announced was a consultation on pension’s tax relief, as the Treasury are pushing for radical reform of tax relief on pensions contributions which costs the Exchequer Â£35 billion a year.Â Currently, the relief allows higher-rate taxpayers (those earning over Â£42,386 to save Â£1 into their pension for every 60p they contribute.
Minister of State for Pensions Baroness Ros Altmann, has recently suggested in an interview with The Financial Times that such a valuable tax perk is under threat and is understood to support a single-rate system but the final decision rests with the Chancellor.
In the foreword to the consultation, George Osborne hinted he wanted a simplified system which is also sustainable.Â The UK currently spends more on pension’s tax relief for higher earners than it does for lower earners, something which has for a long time prompted calls for a flat rate of pensions tax relief.Â All options are being considered by the Chancellor, however some of his officials want to use the consultation as cover to limit or even remove the tax relief entirely.
Limiting tax relief on pensions, to the present basic rate of 20p for every Â£1 contributed, would be more lucrative for the Treasury, saving it Â£13 billion a year.Â However, this would mean higher earners would lose an average of Â£3,000 a year.
The findings of the consultation will be published in October and the Autumn Statement is expected in November.Â Experts believe that the most likely outcome of the consultation is that pension relief for high earners will be scaled back.Â Therefore, the message being relayed to higher-rate tax payers is to act now at the ‘closing-down sale’ while you can.
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