MSE News: Pensions tax relief slashed to save £4 billion a year

gadgetmind

mitchaa wrote: »

I take it someone earning £150k and putting £100k of that into a pension scheme as it stands gets 40% tax relief on that £100k?

No. For 2009/10 and 2010/11 there are some mind bendingly complex rules that impose limits of £20k to £30k on what someone earning over £130k can put into a pension and get full tax relief.

Someone earning £129,999.99 can however do whatever they want.

Ian

jamesd

zygurat789, yes, you could put in pension contributions for a spouse.

Duxxer

What the Government (and the previous Government in a different way) is doing with this scheme is seeking to tax the income twice; once when it is paid into a pension scheme without tax relief and again when it is taken as a pension. If I save some of my after-tax income, I expect to pay income tax on any interest as it accrues, but I do not expect to pay tax on any withdrawals. My pension contributions should be no different. The Government can decide when it wants to tax pensions, but it should only do so once.

jamesd

Duxxer, I doubt that the government expects to tax pension money twice, for there is no reason to use a pension for investing unless there is some tax relief or employer payment to compensate for the freedom that you're sacrificing.

cing0

I don't know if this is OT but if I was in receipt of only a basic state pension and I invested my savings in a stakeholder pension (10's of thousands), how much tax relief would I get ? On all of my investment or just to the value of my basic state pension (earnings) assuming I'm under 75.

jem16

cing0 wrote: »

I don't know if this is OT but if I was in receipt of only a basic state pension and I invested my savings in a stakeholder pension (10's of thousands), how much tax relief would I get ? On all of my investment or just to the value of my basic state pension (earnings) assuming I'm under 75.

I'm not sure that pension income is regarded as earnings in which case you would only get tax relief on £3600.

If your state pension does count as earnings then the tax relief would only be on that value.

Duxxer

jamesd, if any contributions are subject to tax (and these could be deemed contributions due to an ill-health or redundancy enhancement) then the income will be taxed twice. If the intention is simply to stop anybody paying more than £50K per year into a pension scheme, then any gain now has to be offset by a future loss of tax because retired people will be paying less on their pensions.

dunstonh

gadgetmind wrote: »

No. For 2009/10 and 2010/11 there are some mind bendingly complex rules that impose limits of £20k to £30k on what someone earning over £130k can put into a pension and get full tax relief.

Someone earning £129,999.99 can however do whatever they want.

Ian

That is no longer the case. They were stupid rules. God knows what Gordon Brown was thinking when you dreamed those up. However, the emergency budget abolished them and the new £50k annual allowance is its replacement.

vva

I have not paid into my pension all year. I have just realised that my earnings will take me over the higher rate of tax so I have to pay £40 in tax for every £100 I earn. If I make additional contributions into my pension to bring my annual taxable pay down to under £42,500 then I can avoid paying tax on my earnings over this amount. Am I allowed to pay a few thousand into my pension in one lump sum or do I have to make my payments regularly? Is there any disadvantage to paying in a lump sum?

dunstonh

I have just realised that my earnings will take me over the higher rate of tax so I have to pay £40 in tax for every £100 I earn.

No you dont. You only pay higher rate on the amount that falls into the higher rate band. You still pay no tax up to your personal allowance and basic rate on that amount within that band.

Am I allowed to pay a few thousand into my pension in one lump sum or do I have to make my payments regularly?

Lump sums are fine. Indeed, very common.

Is there any disadvantage to paying in a lump sum?

no. Inded, for self employed or company directors, it is very common for them to use this to pay towards the end of the business year once earnings for the year are known.