Threat to tax relief on Pensions
It seems that every year there is a threat to the existence of tax relief on personal contributions to pensions. In the lead up to every government budget, the financial services industry and the media wheel out the same story about tax relief being reduced or removed, and every year we find that it remains untouched.
This year is slightly different, as we have seen a large number of attacks on pensions in terms of the maximum contribution levels and the total amounts that can be held in pensions. These alterations to the pensions system have been primarily about the exchequer reducing the amount of tax relief that is given, and therefore it would be no surprise if George Osborne continued with this strategy.
There is lots of talk of a flat rate of tax relief being introduced, with numbers between 25% to 33% being touted. The difference this year is that these numbers appear to be emanating from people who would not normally be so confident of such changes, and there is a suspicion that these numbers have been in some way 'leaked' to the financial services industry. We do not know for certain, nor will we know until the Spring Budget of 16th March 2016.
If higher rate and basic rate relief is removed and replaced by a flat rate, this will of course be bad news for anyone who would get 45% or 40% tax relief, as this would be reduced to the flat rate, whatever that might be.
There is some evidence to support the view that should a flat rate of tax relief be introduced, it may very well be effective immediately i.e. from the 16th March 2016.
We would encourage anyone who was planning to make a personal contribution to pensions, and who is a higher rate taxpayer in this financial year, to do this before the 16th March 2016. We don't know for sure, but it may be the last chance you have to obtain tax relief on personal contributions at your highest marginal rate.
This entry was posted on February 15, 2016