Pensions speculation/ The withdrawal of higher rate tax relief?

01 February 2016

In my 30 years in the profession, the annual scaremongering of what's going to be cut is nothing new, with many expectations being incorrect.

This time, the expectation of reductions comes with a planned alternative of introducing a flat rate of pension's personal rate tax relief for all at a higher flat rate level, with figures of 25% or 30% being mooted. None of this is guaranteed until The Chancellor has had his say, but for those who currently enjoy and still have the ability to contribute to pensions to gain higher rate tax relief, any change could be important now.

Contributions paid by companies for employees and directors we believe will remain unaffected, although again this is in the hands of the Chancellor.

The budget is on Wednesday 16th March 2016 and if you have a plan to make a personal pension contribution to gain higher rate tax relief in this tax year (2015/2016), we would recommend this is made before this date.....just in case.

The current personal pension contribution position is as follows:

  • The maximum contribution that can be made in this tax year is £40,000 gross from all sources (i.e.: Including employer's contributions)
  • HMRC Carry Forward may be used to increase this amount limit if appropriate
  • Higher rate personal pension tax relief at 40% is usually granted on earnings over £42,385 in this tax year 2015/2016
  • Additional rate personal pension tax relief is granted for earnings above £150,000. However, if you have higher earnings above £150,000, the contribution limit of £40,000 gross would be reduced
  • Standard rate personal pension tax relief is currently granted at 20% (and the speculation is that this level will rise to 25/30%
  • If you are in an uncapped income drawdown plan and have drawn any income at any time, the maximum personal contribution limit of £40,000 gross from all sources falls to £10,000 gross
  • The current minimum age to which pension benefits can be drawn is 55. Please ensure that any contributions made are affordable
  • Also, remember that for those affected, (as noted in our last Newsletter) the HMRC Lifetime allowance is reducing in the new tax year 2016/2017 to £1.0 (from £1.25M) and the possible change in personal tax relief noted above may have a bearing on the choices made by those affected

There are no guarantees that changes will be made. However, the door seems to be open to allow changes to occur and the UK's deficit is not going to reduce itself without help.

No individual advice is contained within this note and it is important that you seek individual advice promptly as we start to approach the end of the tax year. The team at Chapters Financial, either in Guildford (01483 578800) or Woking (01483 330800), would be pleased to help with your pension and retirement income planning process.

Keith Churchouse FPFS, CFP Chartered FCSI


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