FT - Tories to raid tax relief pensions

ffacoffipawb

zagfles said:

ffacoffipawb said:

Quid pro quo. No higher rate tax relief going in so no higher rate tax payable on pension income on the way out either then?

Nope. As I said earlier, that tax penalty nicely replicates the LTA, meaning the LTA could be abolished.

Currently, you get 40% relief and if you pay higher rate tax in retirement you've almost certainly blown the LTA, so pay 55% on the way out. Replaced by 25% relief and 40% on the way out. Same 15% tax penalty.

Check ...

Current position, HRT over LTA.
£100 gross is £60 net.
£100 in pension cost £60 get £45 out. Lose 25%.

Proposed position. LTA abolished.
£100 gross is still £60 net.
£75 in pension cost £60 get £52.50 out post PCLS

So actually better off as get PCLS.

However HRT under LTA is worse off as they would currently get £100 x 0.25 + £100 x 0.75 x 0.6 = £70.

So the richest HRT gain and the not so rich lose.

Maybe retain LTA for PCLS only to offset?

CSL0183

zagfles said:

DairyQueen said:

zagfles said:

It's swapping a migrane experinecd by a few, crucial people like doctors, to a slight headache experienced by a greater number. For most, it'll make no difference to their behaviour. For a few, you might be right, but equally others may delay their retirement as it means they can't afford to retire for another year or 2. Only a fool would stop pension contributions completely just because higher rate relief had gone, unless they expecting to pay higher rate tax in retirement in which case they'd currently likely be hit by the LTA anyway. The incentive would be the same as it currently is for basic rate payers. And if they did, why would the govt care? Unlikely many would end up relying on welfare in retirement.

Excellent. Give younger age groups who pay/may pay HRT another stick to beat-up boomers.

"T'aint fair. They received relief at a higher rate than us and for all of those decades".

Pass the paracetamol. I have a headache just thinking about it.

Given that only about 15% of taxpayers pay higher rate tax, and even less amongst "younger" groups, a flat rate relief set at somewhere between the basic rate and higher rate would mean the vast majority would get more tax relief not less.

That's simply not true though as you are disregarding the fact that the majority of basic rate taxpayers currently get 32-33% tax relief through salary sacrifce (75% of all private pensions use SS)

The difference between basic rate and higher rate is only 10% under a SS scheme, not 20% that is continually referenced. Dont touch something that isn't broken, a flat rate of 20/25 or even 30 would still penalise millions of basic rate tax payers currently enjoying 32/33% relief.

Perhaps make all private pension payments salary sacrifice so everyone receives 32/33% or 42/43% relief. Public sector FS/CARE type pensions could possibly keep the same reliefs as they are a lot more generous and this evens up the field.

Mick70

IF they do reduce the tax relief for 40% tax payers then I think they will either raise or abolish the LTA otherwise it is a double whammy , just depends which raises the most income for the treasury I guess, but suspect it is the tax relief 

Anonymous101

I've raised this issue before on here but I think its risen its head again.
If they simply reduced the higher rate tax relief to the lower 20% then that would create a situation where a basic rate contributions through Sal Sac would benefit by 32% relief (20% tax and 12% N.I.) where as a higher rate contribution would benefit 22% (20% tax and 2% N.I.). I can't think of an effective way to address this other than to change the whole Sal Sac set up.

Paul_Herring

that would create a situation

It's been pointed out on this thread before. Not only would they have to ditch SS as being one massive loophole in this (or otherwise account for the extra relief it gives,) they'd also have to figure out what to do with final salary schemes (commonly used in the public sector - GP's, MP's etc.)

Anonymous101

Paul_Herring said:

It's been pointed out on this thread before. Not only would they have to ditch SS as being one massive loophole in this (or otherwise account for the extra relief it gives,) they'd also have to figure out what to do with final salary schemes (commonly used in the public sector - GP's, MP's etc.)

In that case, what do you think is a reasonable time frame to implement such changes? Even a year's notice to such a fundamental shift on how pensions are contributed to seems fairly ambitious to me.

cloud_dog

5 years works for me 

Paul_Herring

cloud_dog said:

5 years works for me 

Ah - indeed; ditto

zagfles

ffacoffipawb said:

zagfles said:

ffacoffipawb said:

Quid pro quo. No higher rate tax relief going in so no higher rate tax payable on pension income on the way out either then?

Nope. As I said earlier, that tax penalty nicely replicates the LTA, meaning the LTA could be abolished.

Currently, you get 40% relief and if you pay higher rate tax in retirement you've almost certainly blown the LTA, so pay 55% on the way out. Replaced by 25% relief and 40% on the way out. Same 15% tax penalty.

Check ...

Current position, HRT over LTA.
£100 gross is £60 net.
£100 in pension cost £60 get £45 out. Lose 25%.

Proposed position. LTA abolished.
£100 gross is still £60 net.
£75 in pension cost £60 get £52.50 out post PCLS

So actually better off as get PCLS.

However HRT under LTA is worse off as they would currently get £100 x 0.25 + £100 x 0.75 x 0.6 = £70.

So the richest HRT gain and the not so rich lose.

Maybe retain LTA for PCLS only to offset?

There's loads of ways of skinning a cat, which will result in slightly different outcomes. I was thinking of 25% relief paid as a top up, ie the govt will top up net input by 33%, so you pay 75% and the govt (yes - your taxes) pay 25%.

So you put in £60 and the govt will add £20 tax relief. Or you put in £80 and the govt give you £20 back in tax relief - same thing. Also even with abolishing the LTA they'd probably still restrict the PCLS to around it's current value, so assuming above LTA before this change means no LTA but also no PCLS on the excess after...

So...

Current position, HRT over LTA.
£100 gross is £60 net.
£100 in pension cost £60 get £45 out. Lose 25%.

Proposed position. LTA abolished.
£100 gross is still £60 net.
£80 in pension cost £60 get £48 out (no PCLS)

So slightly better off under proposed scheme!
HRT under the LTA is unlikely. Currently more likely the other way round - hit by LTA but within the basic rate band. Unless significant non pension income.

zagfles

CSL0183 said:

zagfles said:

DairyQueen said:

zagfles said:

It's swapping a migrane experinecd by a few, crucial people like doctors, to a slight headache experienced by a greater number. For most, it'll make no difference to their behaviour. For a few, you might be right, but equally others may delay their retirement as it means they can't afford to retire for another year or 2. Only a fool would stop pension contributions completely just because higher rate relief had gone, unless they expecting to pay higher rate tax in retirement in which case they'd currently likely be hit by the LTA anyway. The incentive would be the same as it currently is for basic rate payers. And if they did, why would the govt care? Unlikely many would end up relying on welfare in retirement.

Excellent. Give younger age groups who pay/may pay HRT another stick to beat-up boomers.

"T'aint fair. They received relief at a higher rate than us and for all of those decades".

Pass the paracetamol. I have a headache just thinking about it.

Given that only about 15% of taxpayers pay higher rate tax, and even less amongst "younger" groups, a flat rate relief set at somewhere between the basic rate and higher rate would mean the vast majority would get more tax relief not less.

That's simply not true though as you are disregarding the fact that the majority of basic rate taxpayers currently get 32-33% tax relief through salary sacrifce (75% of all private pensions use SS)

The difference between basic rate and higher rate is only 10% under a SS scheme, not 20% that is continually referenced. Dont touch something that isn't broken, a flat rate of 20/25 or even 30 would still penalise millions of basic rate tax payers currently enjoying 32/33% relief.

Perhaps make all private pension payments salary sacrifice so everyone receives 32/33% or 42/43% relief. Public sector FS/CARE type pensions could possibly keep the same reliefs as they are a lot more generous and this evens up the field.

Why are you assuming sal sac or the NI "relief" of pensions would change? This thread is about tax relief, no-one has proposed any changes to the current NI relief position. Even if the govt went for the "pure" option of making employer pension contributions a taxable benefit with a flat "tax relief" top up, sal sac would still save NI in exactly the same way it does now.

I currently use sal sac for a couple of taxable BIKs (benefits in kind), and because I sacrifice salary in return for a benefit of the same value I don't save any tax, since I'm taxed on the BIK instead of the money, but I do save NI, because employees don't pay NI on BIKs. So no reason the same wouldn't apply to pensions.