Pensions - end to higher earners tax relief?

RobStaffs

with flat relief of 32% for all. Did anyone here this on a recent episode on Money Box.Would the Govt really consider this?.This was proposed a few years ago by Aviva also stating that the two tier system as it stands is confusing and does not encourage people to save for their pensions. Its not confusing for me.Sorry to keep on adding to this but the impending convergence of the NI/Income tax regime may also be the catalyst to drive this home

jamesd

The Liberal Democrats have the following in their 2010 manifesto on the first page of the Your Money section: "Giving tax relief on pensions only at the basic rate, so that everyone gets the same tax relief on their pension contributions". So at least part of this government wants to do that and more.

Basic rate tax payers already get 32% tax relief on pension contributions if their employer operates a salary sacrifice pension scheme, so all that's required to help basic rate tax payers is to promote such schemes. Employers who don't operate a salary sacrifice scheme are missing a trick that saves both them and their employees money. A lot of the employers who operate such a scheme also add in half or more of the 13.8% employer's NI rate. That and more is already going to happen as a result of the mandatory pension signup plans that Labour set up, with the option for the employee to opt out.

Combining income tax and national insurance doesn't make a lot of sense, in part because the two are for different things. But it is a way to sneakily raise taxes. That may well make it a popular option for politicians.

Venture Capital Trusts offer:

• 30% tax relief on the way in.
• Tax free income for as long as you hold the investment.
• No capital gains tax.
• A range of risk levels, starting at around medium.
• Only have to hold for five years to avoid having to repay the tax relief.
• No significant limit on how much can be put in for most of the population, tax relief is up to 100% of the tax you paid in the year.

30% tax on the way in, saving at least 20% tax on all income and saving CGT hasn't been enough to promote massive adoption of them. They have been becoming more popular with higher rate tax payers after the reduction in pension contribution limits and a decrease in the tax relief on higher rate pension contributions would probably divert even more money from pensions into VCTs.

The £50,000 annual limit on pension contributions already delivered a substantial reduction in the tax relief available to those who are the highest earners. With basic rate tax payers already able to get 32% or more from employers who care about saving themselves and their employees money the only bit really remaining is the stealth tax rise part from reducing the higher rate tax relief.

Also in that section of the manifesto are:

• Capital gains tax at the same rate as income tax. So you'd get to pay income tax rates on inflation growth in monetary value even if the real value is unchanged. It's already a second tax on the gains made on the money you've already paid income tax on once. Partly done.
• 1% tax on the part of property values over £2 million. A bonus prize for those in the South East who already pay higher stamp duty than the rest of the country because of local property values. In progress.
• Per plane instead of per passenger duty on air travel. Found to breach treaties the UK is party to.
• Eliminating payments into Child Trust Funds by the government. Done.
• Restricting who can get tax credits. Done or in progress.
• Reducing HomeBuy schemes. Done.
• Reforming public sector pensions. In progress.
• £400 pay rise cap for public sector workers. Done, and more.
• Removing the need to buy a pension annuity after age 75. Labour had already done that, this government used it as part of the excuse for cutting income drawdown income by 18% with minimal notice and increasing the tax paid by the estates of people who die before they are 75.
• Mentioning that the lowest fifth of people pay more tax as a percentage of income than the top fifth. The government raised VAT as well as the income tax personal allowance, so the poorest part are probably worse off than before now.

kidmugsy

"Only have to hold for five years to avoid having to repay the tax relief": what happens if you die during the five years?

jamesd

"Death does not give rise to a withdrawal of ‘front-end' income tax relief, nor does any event occurring after death". Nothing to repay.

nearlyrich

So they are going to cut the only perk left that stems from paying loads of extra tax? Great...

dunstonh

This assumes that they are going to cut it. Remember that half the headlines you read are only opinion or some left or right wing think tank trying to push what they want.