Lump sum pension contribution before potential Labour tax raid?

Ron_Weasley

I wonder if I might canvas some opinions?  I have a reasonably high income (45% tax marginal income tax rate) and am considering putting a lump sum into my SIPP to get the 45% tax relief.

Of course I would not get the tax back until I complete a tax return in 2025,

Do you think I should do this now, before Labour do anything like limiting tax relief on contributions to basic rate perhaps?  And what would happen if I make say a 50k payment now and then in say October, Labour do change the rules. Would I still get 45% tax back (since the contribution has already been made) or would I not (since the tax rebate would not have been paid back to me yet)?

What's your thoughts. I would kick myself if I don't put the money in now and then Labour limit the tax relief on contributions going forward. On the other hand, I would also kick myself if I DO put the money in, only to find the tax I can later claim back is reduced (in which case, I'd rather have hung on to the cash).

So I am in a bit of a dilemma!

MeteredOut

No-one knows what any new government might do, or how that might be implemented if any new government does change anything.

General advice would be to do what you'd would otherwise do based on todays tax regulations, and don't do anything just because you suspect a as-not-yet-elected-government might do something.

The dilemma is of your own making.

Ron_Weasley

Thanks for your comment, although to be honest I don't find it particularly helpful.  Clearly different choices may result in better or worse outcomes, so it is wise to consider the possibilities and try to figure out which scenarios are more likely.

Personally I think it is very likely that Labour will raid pensions in some way, because they will be desperate to improve public services by increased spending, so the money will have to come from somewhere.  The question is whether they may try to introduce legistation that affects pension contributions one has already made in the current tax year. That's the main thing I am unsure of.

Hoenir

Ron_Weasley said:

Thanks for your comment, although to be honest I don't find it particularly helpful. 

No end of speculation will either. Do what's right for you as matters stand now. No one can predict what the future has in store. 

Dazed_and_C0nfused

Ron_Weasley said:

I wonder if I might canvas some opinions?  I have a reasonably high income (45% tax marginal income tax rate) and am considering putting a lump sum into my SIPP to get the 45% tax relief.

Of course I would not get the tax back until I complete a tax return in 2025,

Do you think I should do this now, before Labour do anything like limiting tax relief on contributions to basic rate perhaps?  And what would happen if I make say a 50k payment now and then in say October, Labour do change the rules. Would I still get 45% tax back (since the contribution has already been made) or would I not (since the tax rebate would not have been paid back to me yet)?

What's your thoughts. I would kick myself if I don't put the money in now and then Labour limit the tax relief on contributions going forward. On the other hand, I would also kick myself if I DO put the money in, only to find the tax I can later claim back is reduced (in which case, I'd rather have hung on to the cash).

So I am in a bit of a dilemma!

If you are self employed there isn't much you can do about that.

Had you been an employee you could get provisional relief via your tax code.

Why do you think the new government would introduce retrospective legislation for pension tax relief?  They will have plenty of bigger fish to fry!

zagfles

Obviously this is speculation, but I think it's likely that tax relief may eventually be restricted to basic rate or possibly flat rate eg 25%, but I doubt they'd be able to make any changes this tax year. But it's possible they could introduce anti-forestalling legislation, as the previous Labour govt did in 2009 when they planned to restrict tax relief to basic rate for high earners (and which never happened because of the change in govt, instead the annual allowance taper happened which had a similar effect on very high earners). 

So if that sort of thing happens again, then contributions now would be OK but contributions after the announcement/budget may be caught by anti-forestalling. 

So personally if I was it that situation and was going to make a big contribution this tax year anyway, I'd do it now rather than later. Anti-forestalling is more likely than retrospective taxation IMO. 

Albermarle

 Clearly different choices may result in better or worse outcomes, so it is wise to consider the possibilities and try to figure out which scenarios are more likely.

However as it is all based on speculation, you may well decide to do something that later turns out to be negative for you.

Brie

I'd wait at least until Friday morning to do anything.  And then maybe wait til after parliament breaks for the summer.

booneruk

It would be very difficult to reduce tax relief to a common base if salary sacrifice is still a thing, at least as far as I see it. Would they completely kill that off?

It's all speculation, and if I had a pound for every time someone stressed about changes to pension allowances then, well, I wouldn't need to save for a pension!

MetaPhysical

99.9% certain nothing will change this tax year.  The Labour party will order a pensions review that will take an age to report on.  However, for /next/ year I do foresee them dropping the pension annual allowance back to 40k and a flat rate of 30% tax relief.  Special provision will be made for NHS staff/public sector.

kempiejon

Ron_Weasley said:

I wonder if I might canvas some opinions?  I have a reasonably high income (45% tax marginal income tax rate) and am considering putting a lump sum into my SIPP to get the 45% tax relief.

Of course I would not get the tax back until I complete a tax return in 2025,

Do you think I should do this now, before Labour do anything like limiting tax relief on contributions to basic rate perhaps?  And what would happen if I make say a 50k payment now and then in say October, Labour do change the rules. Would I still get 45% tax back (since the contribution has already been made) or would I not (since the tax rebate would not have been paid back to me yet)?

What's your thoughts. I would kick myself if I don't put the money in now and then Labour limit the tax relief on contributions going forward. On the other hand, I would also kick myself if I DO put the money in, only to find the tax I can later claim back is reduced (in which case, I'd rather have hung on to the cash).

So I am in a bit of a dilemma!

Yes, do it now. You'll probably feel better. I always put my full allowance into my SIPP each new tax year so you're already 3 month too late. Have you not filled your ISA yet either? You're missing time compounding. Also won't you get back the 20% element from your SIPP provider first, they gross it up with the balance to come with tax return?