High rate pension tax relief for the chop?

noh

zygurat789 wrote: »

i repeat ALL TAXPAYERS CAN CONTRIBUTE £1000 AT A COST OF £800

It is a simple question of comparing what you pay with what you get.

Therefore the higher rate tax payer has no advantage over the standard rate taxpayer as I stated.

But you are still missing the point.

It costs a lower rate taxpayer £1000 gross to contribute £1000
It costs a higher rate taxpayer £1000 gross to contribute £1000
It costs a non taxpayer £800 gross to contribute £1000

If each of those were earning £20 an hour then, neglecting NI, both the higher rate taxpayer and the lower rate taxpayer would need to work 50 hours to make the £1000 gross contribution.
The non taxpayer would have to work 40 hours to make the same £1000 contribution


A non taxpayer is the one gaining an advantage with pension contributions not a higher rate taxpayer.

noh

zygurat789 wrote: »

Tax relief is at the discretion of the government. If they wish to encourage something then they will apply a relief, if they wish to discourage something then they will apply a tax. Do you need to be encouraged to save for your retirement?
A taxation system should treat all subjects fairly (to tax a higher income at a higher rate is acceptable) and the fact remains that a higher rate tax payer pays less for the same premium as a standard rate taxpayer.
All payments to a pension are ultimately savings (the wrapper used is largely for tax reasons ) and I can see no good reason why someone earning a large income should pay less than someone on a lower rate just because of the larger income

They are not paying less they are paying the same.

I personally see no good reason why someone on a larger income should pay a higher rate of tax.

noh

Ian_W wrote: »

........................... Logically as a HRT you pay 20% tax up to circa £40K so why should ALL your pension contributions be at the higher rate? The precedent is there of giving tax relief to none tax payers so there is no argument IMO that the relief has to relate to the actual tax band you're in.

It is not the case that all contibutions attract relief at the higher rate.
For example if you were earning £3000 into the 40% tax band and paid a pension contribution of £6000 gross. £3000 of that would atract tax relief at 40% and £3000 at 20%

Ian_W

noh wrote: »

I personally see no good reason why someone on a larger income should pay a higher rate of tax.

But that's a wholly different argument about taxation - not about the tax treatment of pension contributions. I may actually agree with that argument but given that there has been different rates throughout my 40yrs of working life I think it unlikely to change any time soon.

It is not the case that all contibutions attract relief at the higher rate.
For example if you were earning £3000 into the 40% tax band and paid a pension contribution of £6000 gross. £3000 of that would atract tax relief at 40% and £3000 at 20%

True. But that rather misses the point.
If both a HRT and BRT pay the same - your earlier post - why would a standardised 30% disadvantage the HRT?

dunstonh

The article linked in post #1 doesnt give any hint of pension tax relief and I cant see any link.

Higher rate tax relief always pops up from time to time as being under threat. It has done for 15-20 years.

However, there are some other things going forward which would seem to put it under threat more. In particular the Personal Accounts/NPSS. With that, there is no higher rate tax. Technically there is no basic rate tax either as the Govt contribution is fixed (so if basic rate changed, the Govt contribution wouldnt). Are the Govt going to want one of their schemes to fail because of lack of take up when the alternatives offer better tax relief?

If both a HRT and BRT pay the same - your earlier post - why would a standardised 30% disadvantage the HRT?

You have to go back further in time to understand how this came about. Retirement Annuity Contracts (the pension product before personal pensions) were paid gross. So, whether you were a basic rate taxpayer or a higher rate taxpayer the same premium was paid. On the tax return the premium you paid was declared and this effectively reduced your income subject to tax. When personal pensions came in, it went net for employees but remained gross for self employed (changed later). However, its always remained the same in that the pension contribution is putting back money you have earned and getting the tax paid back to you that you have paid. For higher rate taxpayers, they had paid 40% tax on that bit of earnings and that is why they were getting 40% back.

One of the reasons given in the past for not getting rid of higher rate tax was that it would cost more to change than it would save. What has changed now?

Labours reduction on higher rate on earnings over £150k was an attempt at vote winning. It hit under 1% of the population and made very small savings. However, it allowed to them to publicise how they were taking away benefits from the high earners. A bit like the 50% tax band only hits a minority, albeit a significant minority who are typically the wealth bringers to the UK.

Removing higher rate tax would go down well with the low earners but it hit middle earners most. Not so much a vote winner there. That is why many felt the £150k limit was set rather than a complete removal.

EdInvestor

http://www.ft.com/cms/s/2/5fa1f6da-e102-11de-af7a-00144feab49a.html

http://www.telegraph.co.uk/finance/personalfinance/comment/iancowie/6718078/Grab-top-rate-pension-tax-relief-while-you-can.html

http://www.timesonline.co.uk/tol/money/tax/article6944776.ece

How to beat threat to high rate pension tax relief.

If tax relief was restricted to basic rate it would save £8bn pounds.Gotta be very tempting for Darling, especially as corporates are now shutting down final salary schemes - backing the f/s schemes has been the main justification for this executive perk in the past.It's very hard to justify otherwise.


*25% of high rate taxpayers don't claim their extra tax relief, so they won't miss it if it's removed anyway.

http://www.independent.co.uk/money/pensions/are-you-missing-out-your-pension-tax-relief-1820501.html

zygurat789

noh wrote: »

Therefore the higher rate tax payer has no advantage over the standard rate taxpayer as I stated.
Wrong
But you are still missing the point.
No it's you that do not see it
It costs a lower rate taxpayer £1000 gross to contribute £1000
It costs a higher rate taxpayer £1000 gross to contribute £1000
It costs a non taxpayer £800 gross to contribute £1000
Wrong Just talk to anybody selling pensions
If each of those were earning £20 an hour then, neglecting NI, both the higher rate taxpayer and the lower rate taxpayer would need to work 50 hours to make the £1000 gross contribution.
The non taxpayer would have to work 40 hours to make the same £1000 contribution
Irrelevant

A non taxpayer is the one gaining an advantage with pension contributions not a higher rate taxpayer.

There's none so blind as them that will not see.

EdInvestor

Articles in the Sunday papers all play down raids on pension tax relief and a rise in CGT.

noh

zygurat789 wrote: »

There's none so blind as them that will not see.

It costs a non taxpayer £800 gross to contribute £1000
Wrong Just talk to anybody selling pensions

Not really worth continuing this.
You need to check your facts concerning non tax payers contributions to pension schemes.
http://www.hmrc.gov.uk/incometax/relief-pension.htm#2

Your statement can be applied to your post.

jamesd

zygurat789 wrote: »

Tax relief is at the discretion of the government. If they wish to encourage something then they will apply a relief, if they wish to discourage something then they will apply a tax. Do you need to be encouraged to save for your retirement?

No, but you do need to be encouraged to do it in a pension with the restrictions that come with using a pension.

There's already a non-pension option that offers 30% tax relief so that's likely to see a lot of growth if 40% tax relief on pensions is eliminated. No pension lock-in, so you can take it at any retirement age, up to 100% of the money in a lump sum. This 30% is available for basic rate income as well as higher rate.

For basic rate there's less incentive because a sensible employer can use salary sacrifice (smart pensions). That gets both income tax and NI tax relief so the basic rate income gets 20% income tax relief plus 11% NI relief. For higher rate income without higher rate relief that's just 20% income tax relief plus 1% NI relief because higher rate income comes above the point where NI contributions have dropped. Given a choice between 21% and 30% the higher rate income is naturally best directed away from the pension to the alternative, while the basic rate income getting 31% still gets some gain from keeping the restrictions of the pension. If the employer adds their 12.8% NI the tax relief becomes 43.8% for basic rate and 33.8% for higher rate if there's no higher rate relief.

Given a choice between 33.8% or 21% with pension restrictions, or 30% without pension restrictions, I'd expect a lot of people to go for the 30%. One more nail in the pension coffin and less incentive again for employers to want to support pensions if the bosses and higher earners are rewarded by the tax system for not using them.

If there was a 30% pension relief for both higher and basic rate income that would be interesting in a salary sacrifice system. No pension contributions for a year or two building up savings, then salary sacrifice down to minimum wage. That gets the 30% pension relief and the 11% employee NI relief on the basic rate income instead of 30% and 1% by making the contributions out of only higher rate income.