Boris wants to raise 40% threshold

mpension

Apparently Boris Johnson said he wants to raise the 40% threshold to 80k if he gets in.

I guess that mans a loss of 40% tax relief for a lot of people!! Or it just means we get more in our pay packet to invest?!

Should this be the case, is it reasonable to think we could still use our last three years allowance, or will it not work like that? hypothetically.

Regards

SeniorSam

Changes in tax or usually not retrospective.
Boris wants to 'buy' the vote. The country cannot afford huge tax gifts,

bowlhead99

mpension wrote: »

Apparently Boris Johnson said he wants to raise the 40% threshold to 80k if he gets in.

I guess that mans a loss of 40% tax relief for a lot of people!! Or it just means we get more in our pay packet to invest?!

Should this be the case, is it reasonable to think we could still use our last three years allowance, or will it not work like that? hypothetically.

You won't need the 'relief' if you are not paying the tax in the first place. Going forward, if you're paying higher rate tax on less of your income, you are less likely to need carry forward allowance.

For example: if you earn £79k and this is the last tax year at which your earnings above £50k will suffer 40% tax, it could be useful to make sure you definitely put all of the last £29k of your earnings into a pension this year.

However, that only uses up £29k of your annual allowance, so doesn't use up all of this year's £40k allowance. You won't need any carry forward allowance from previous years to be able to do it, because you're not even using the current year allowance. And next year as you won't be paying high rate tax on any of your income, you won't need to make any pension contributions to relieve higher rate tax, because there isn't any higher rate tax being paid.

All things being equal, if nobody has made any commitments to say that taxpayers will no longer be able to carry forward unused allowances into future tax years in which they have sufficient income to use them, then 'hypothetically' you will still be able to carry forward unused allowances into future tax years in which you have sufficient income to use them, just as you can today.

However, if the 40% threshold is being raised, perhaps the government will want to make back some tax revenues from elsewhere by cutting reliefs or allowances (rather than just raising rates or making do with lower revenue). So carry forward might go, even though there have not been any pointers to say that it will.

Your question is basically: "a politician has said he would like to change income tax bands ; does that mean he will change certain parts of the pension system". I would suggest no, it does not mean he will change certain parts of the pension system, because he hasn't said that he will do that. However, politicians have to pay for their election promises somehow and are usually keener to advertise things that they think people will like, rather than things that they think people won't like.

Being able to carry forward unused allowances to contribute more than £40k a year is something only higher earning, wealthier people can use, so it is hard to justify that to less well-off people and an average household would be happy for it to be scrapped.

However, as it is something that only some people can use (and the really really wealthy people don't need to use it anyway because they max out their allowance every year rain or shine) it would probably not actually raise much extra tax revenue in the grand scheme of things if it were scrapped. So you would probably not expect it to be a major target of a new PM.

mpension

Many thanks. Makes a lot of sense to newbie!

hugheskevi

Being able to carry forward unused allowances to contribute more than £40k a year is something only higher earning, wealthier people can use, so it is hard to justify that to less well-off people and an average household would be happy for it to be scrapped.

It isn't uncommon to see folk earning £30-something thousand p/a breach the £40K Annual Allowance, if they have long-service in a final salary scheme and get a promotion.

tibbles209

"Meanwhile, Mr Johnson told the Telegraph he planned to cut income tax bills for three million people, partly by using money from a pot set aside by the Treasury for a possible no-deal Brexit, and partly by increasing employee national insurance payments in line with the new income tax threshold."

So it sounds like NI of 12% would apply to the whole new lower tax band, so you'd pay 20% less tax but 10% more NI, and of course your NI is not deductible for pension contributions so your pension will be worse off.

prowla

I think the limit should be raised, as a salary 40k is not exactly the life of Riley; however, I would suggest that 80k would be quite a jump.

Anonymous101

On the face of it personally it would be good news, I would pay much less tax. However looking at the state of the NHS and Police services I wouldn't think that this was a good move at all.


Regardless of that I think that this was dreamt up on much the same way as his Brexit will get the NHS £500 million a week or whatever he said.... i.e. Total nonsense!

Brynsam

Since when did politicians keep promises? This is nothing other than an attempt to buy votes.

worried_jim

He can add it to the extra £350m a week already going to the NHS.

EdSwippet

No mention of scrapping the effective 60% rate on income between £100k and £125k.