Following the election of a Conservative Government the partys manifesto is now to become a reality and higher earners have been urged to pump extra money into their pensions before the new government slashes the generous 45% tax relief available.
The Tory partys manifesto included a pledge to raise the inheritance tax threshold for couples to 1m by reducing the tax relief on pension contributions for people earning more than 150,000.
Someone earning 250,000 and contributing 40,000 a year to a pension will see the value of the benefit slump from 18,000 to just 4,500, according to the investment provider Old Mutual Wealth.
The Conservative proposal is for the annual allowance, the maximum that can be saved into a pension with the benefit of tax relief, to be tapered on earnings between 150,000 and 210,000. It will go down by 50p for every 1 of income above 150,000, which will cut it to just 10,000 for those earning 210,000+.
The new government is also planning to cut the lifetime allowance, the maximum that an individual can hold in pensions and gain full tax relief, from 1.25m to 1m next April.
The Conservatives said last month:
“With this cut in the lifetime allowance and the annual allowance of 40,000 tapering down to 10,000 for those earning more that 150,000, the pensions tax relief system will be fair and affordable, and we will not propose any further changes to the system during the next parliament”.
The change is expected to come into effect in April 2017, however experts fear it could be sooner and higher rate tax payers may wish to consider contributions as soon as possible.
Robertson Baxter is a full service whole of market Independent Financial Advice firm. We offer a Family Office approach to clients of high and ultra high net worth together with Trustees and Charities. Our holistic advice covers all areas of Pension, Investment, Protection and Estate Planning, serving clients across Yorkshire.