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Pension Tax breaks to be watered down?
Posted: 28 May 2010
Author: Tony Robinson
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NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND.
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Across all areas of taxation, financial advisers are waiting somewhat nervously to see which particular rules are to be affected by the pending Budget on the 22 June. A new government will undoubtedly wish to make its mark on the fiscal position of the UK, and due to the current deficit they will need to increase the tax take fairly quickly.
Pensions are one area that could be affected and to some extent the restriction of tax relief on contributions made by perceived ‘high earners’ started 12 months ago in the April 2009 Budget. At that stage legislation was introduced to restrict tax relief on pension contributions for individuals with income in excess of £150,000 in the current, or two previous tax years. There was some protection for regular contributions already being made, although it was a clear indication that the then Government wished to restrict the attractive 40% relief on pension contributions for those individuals. The restriction of relief was amended in December 2009 to affect individuals with income of £130,000 in the current or two previous tax years.
The Liberal Democrats had suggested in their manifesto that they would restrict tax relief on pension contributions for higher rate income tax payers to just 20%. You may have seen that the new pension minister is Steve Webb, a Liberal Democrat. He has said in the past that he agrees with Liberal Democrat policy generally that all higher rate tax relief on pension contributions should be removed.
If are considering lump sum pension funding in the current tax year and you are a higher rate income tax payer, there may be an argument for organising a premium before the budget on 22 June. Of course this hinges on having funds available now. Even if the rules do not change, there seems little downside in paying in the contributions sooner rather than later.
If you would like to consider or discuss your pension options, please contact Tony Robinson at Alan Boswell Group by email or telephone on 01603 218090.