Pensions tax relief ‘slashed in March’ as Sunak plots Budget raid. ‘Use it NOW or lose it’
Tax relief on pensions contributions costs the Treasury an incredible £41 billion a year, which makes it a juicy target for Sunak. A pensions tax raid could clawback at least £10 billion but would be a massive blow for savers.
Pensions tax relief is worth up to £16,000 a year to people saving in workplace and personal pensions, and in some cases more.
It is one of the most generous tax breaks offered by HM Revenue & Customs, and is designed to encourage people to invest for their own retirement.
Tax relief is designed ease the pressure on the State Pension by encouraging people to save into a workplace or personal pension, but it is hugely expensive and favours wealthier taxpayers.
There have been rumours of a Treasury tax raid for years. Now Sunak may act where previous Chancellors have held back.
His Spring 2022 forecast statement on March 23 could be the day.
Slashing pensions tax relief will help to shore up public finances, said Adrian Lowery, personal finance expert at investing platform Bestinvest.
Tens of millions saving in a pension today would pay a heavy price, though.
Basic rate taxpayers automatically get 20 percent relief on their contributions, so that each £100 that goes into their pension only costs them £20.
Higher rate 40 percent taxpayers get more generous relief, so each £100 of pension costs just £60.
Additional rate 45 percent taxpayers get £100 of pension for just £55 and many think this is unfair, Lowery said. “The benefits are greater for the better off.”
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He said: “Pensions have escaped relatively lightly so far and the increasing cost of pensions tax relief could finally fall under the spotlight.”
Don’t hang around waiting to see what happens, he added. “Those wishing to make significant personal pension contributions in the current tax year may consider acting before the next Budget.”
Shaun Robson, head of wealth planning at Killik & Co, has added his voice to the chorus of tax experts urging pension savers to use pensions tax relief. “Reductions or limits to tax relief on pension contributions or even a flat rate of tax relief cannot be ruled out.”
There may be a silver lining if Sunak acts, said Aegon pensions director Steven Cameron.
One option would be to move to a flat rate of tax relief either 25 or 30 percent. “This would be positive for those paying basic rate income tax of 20 percent, as they would get more.”
However, it would still hit higher rate taxpayers, who should consider using this hugely valuable tax relief now or risk losing it in a couple of months.
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