End of 40% tax relief on pensions?

CLAPTON

if you are going to lose 5,000 per annum from a reduction of tax relief form 40% to 20% that means you are currently contributing 25,000 per annum to your pension ... is that really the case?

wonderman

CLAPTON wrote: »

if you are going to lose 5,000 per annum from a reduction of tax relief form 40% to 20% that means you are currently contributing 25,000 per annum to your pension ... is that really the case?

And why not? The limit is over £200k.

CLAPTON

wonderman wrote: »

And why not? The limit is over £200k.

indeed so, just putting things in perspective as there are relatively few people who make contributions of that magnitude

baby_boomer

CLAPTON wrote: »

if you are going to lose 5,000 per annum from a reduction of tax relief form 40% to 20% that means you are currently contributing 25,000 per annum to your pension ... is that really the case?

The OP said my family not just me. And yes, we would stand to lose £5K or more in 2009/10. From 20010/11 it would be less than £3K - hence my particular concern about when it might come in.

It may be that the possible loss of the tax break might be linked to the government's own policy, when they recently removed restrictions on annual contribution limits. Maybe it has proved just too popular?

BTW this may be nothing, but in February my partner got a letter from the Inland Revenue saying that she wouln't have to submit a tax return in future - I guess because they could see the pattern that we were using pension contributions each year to put her back into the basic rate tax band.

Yesterday she got another letter reversing that & saying that she would now have to put in a tax return in future.

That change of mind would be consistent with the Revenue knowing that 40% tax relief on pensions was about to be abolished - although I doubt if the Chancellor would want it widely known for certain before his speech.

jem16

baby_boomer wrote: »

BTW this may be nothing, but in February my partner got a letter from the Inland Revenue saying that she wouln't have to submit a tax return in future - I guess because they could see the pattern that we were using pension contributions each year to put her back into the basic rate tax band.

I've been doing that for the last 3 years but still have to submit a tax return.

Funnily enough this tax year with the increase in the starting rate of higher rate tax I might just stay out of it anyway.

jamesd

baby_boomer wrote: »

Would the government dare to implement it in this tax year - when they are already stinging middle income earners for £400 pa by increasing the limits on National Insurance levies?

Higher rate tax payers are not middle income by any meaningful use of the term. The required income is way above median income. According to the Institute for Fiscal Studies Survey of the UK Tax System "Of a UK adult population of around 50 million, it is estimated that there will be 30.6 million taxpayers in 2008–09. Around 3.6 million of these will pay tax at the higher rate, providing 55.8% of total revenue". 3.6 / 60 * 100 = just 6% of all tax payers are at higher rate. Even with the higher rate pension tax relief this group already pays well over half of all income tax.

You might see how your household compares using this IFS wellbeing tool.

Do remember that the Liberal Democrats are committed to abolishing this, so you know who not to vote for if you want it to stay around.

steadysaver

Interesting article here. Looks like it is being reported in the news and they are seriously considering removing the 40% relief. If they were to do this and not do anything about public sector pensions or there own MP pension (like Ireland have done) it is just another slap in the face to anyone trying to save for their future.

http://www.thisismoney.co.uk/retirement/article.html?in_article_id=482756&in_page_id=6&ct=5

baby_boomer

jamesd wrote: »

"Of a UK adult population of around 50 million, it is estimated that there will be 30.6 million taxpayers in 2008–09. Around 3.6 million of these will pay tax at the higher rate, providing 55.8% of total revenue". 3.6 / 60 * 100 = just 6% of all tax payers are at higher rate. Even with the higher rate pension tax relief this group already pays well over half of all income tax.

Interesting. Although clearly there are many more than 3.6m taxpayers earning £41K or more since my partner, Jem and me among others wouldn't currently be included in that figure.

I guess this means that if they're going to abolish the top rate tax relief they will do it with a sudden strike and with no notice - as otherwise 2009/10 tax revenues will fall as very wealthy higher rate taxpayers stuff their pensions - with up to £245K - for the last time.

Old_Slaphead

This Government is sneaky and I wouldn't put anything past them in an effort to glean popularity with the masses.
I'm going to make a pension contribution before Wednesday in the hope that, even if they do end HR tax relief with immediate effect, then they won't apply it retrospectively.

jamesd

baby_boomer wrote: »

I guess this means that if they're going to abolish the top rate tax relief they will do it with a sudden strike and with no notice - as otherwise 2009/10 tax revenues will fall as very wealthy higher rate taxpayers stuff their pensions - with up to £245K - for the last time.

It'll just make salary sacrifice more attractive. See the sticky topic for more about how that works. Salary sacrifice even saves the employee and employer NI so it would be shooting themselves in the foot if it caused more people to use that instead.

They could also try to block salary sacrifice for pensions but that would hurt quite a few low and middle income earners, since the saved employee NI that ends up in the pension is most significant below the higher rate band. That in turn means those people are more likely to end up relying on state benefits later.

A lower cap on how much higher rate relief you can receive in any one year seems more likely to me, if it happens at all. That would affect fewer people, so reduce the chance of a big move into salary sacrifice.