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Is the end nigh for higher rate tax relief on pension contributions?
Posted by Alan Davies on 2/17/2012
Possibly, if Danny Alexander is to be believed as, when talking to the Daily Telegraph, he indicated he would like to further squeeze high earners by restricting the amount of tax relief they currently obtain (40% or 50%) on pension contributions to a maximum of 20% and, at the same time, save the Exchequer more than £7 billion!
He also went on to say "It's very important that in these difficult times that we are asking those with the broadest shoulders to share the greatest share of the burden."
Alexander also argued that that workers on the minimum wage who earn up to £12,500 a year should pay no income tax at all, saying: "When it comes to people on low and middle incomes, I am a tax-cutter by instinct."
Under current legislation, the Government tops up every 60p saved into a pension by a higher-rate tax payer by 40p, making it up to a £1. The Liberal Democrats want to see this top up halved to 20p -in line with the basic rate of income tax. However, the decision is likely to face criticism from experts who will argue that it will deter people from saving and place more pressure on the pension system it could also be one of those pre budget “scaremongering” items that tend to do the rounds at this time of year. However, anyone considering making a pension contribution with a view to maximizing tax relief should consider doing so before 5th April net as such relief, if Danny Alexander has his way, may not be around thereafter.
For further information, contact your usual Bishop Fleming relationship manager or Alan Davies, Director of Private Client Services on 01392 448800.
All information correct at time of posting.