Pension tax relief - possible flat rate of 30% / annual cap reduction back to £40k

intalex

Strictly avoiding any opinions over the rights/wrongs of these 2 changes that could be possible changes announced in next month's budget, is it possible to at least discuss how such a change could be implemented, including timelines, and whether anyone affected by it should take proactive measures in the coming weeks to "secure" themselves under the current rules?

Most pertinently, would they be able to put these into effect immediately in the current 24/25 tax year, given that more than half the tax year will have lapsed by the time they announce the changes and people may have already maxed their contributions on the understanding that they were (rightfully) following the current rules? Or are these 2 changes (if announced) most likely to be implemented effective the next 25/26 tax year to have a clean start?

Mark_d

I don't think it would be practical to implement these changes for the 2024-25 tax year, so next year would be more likely.

If/when these changes do come in I will drop my pension contribution rate from 40% to maybe 10% and use the increase in take-home pay to invest in ISA.  I don't want to be getting 30% tax relief now, only to be hit with 40% income tax in retirement

Hoenir

Always work on the basis that whatever the current tax legislation is , that it won't last forever. Fundamental changes to personal taxation are unlikely. As impossible to police or implement. Hence the new tax year 6th April change date. 

kempiejon

Mark_d said:

I don't think it would be practical to implement these changes for the 2024-25 tax year, so next year would be more likely.

If/when these changes do come in I will drop my pension contribution rate from 40% to maybe 10% and use the increase in take-home pay to invest in ISA.  I don't want to be getting 30% tax relief now, only to be hit with 40% income tax in retirement

Conversely who would pay in now as a 20% rate tax payer when they might get 30% next year? I prefer ISAs currently outside of tax for a retirement income. You might find an ISA focus could let you drop a tax code.

I doubt anything would happen instantly or retrospectively so I guess 24/25 is the likely outcome, but I know I cannot know so I'm sticking to my plan trying not to get worked up on 2nd guessing and wait to see.

dunstonh

Changing tax relief like that is a massive job and not something that could occur overnight.

Albermarle

Probably worth a read of this thread.
How would a change to pension tax relief affect salary sacrifice THP — MoneySavingExpert Forum

zagfles

It would be possible to introduce anti-forestalling legislation like they did in 2009 when they intended to restrict tax relief to basic rate for high earners. See Microsoft Word - Pension Anti-Forestalling Rules 2010 (rosan-ifa.com)

Mark_d

kempiejon said:

Mark_d said:

I don't think it would be practical to implement these changes for the 2024-25 tax year, so next year would be more likely.

If/when these changes do come in I will drop my pension contribution rate from 40% to maybe 10% and use the increase in take-home pay to invest in ISA.  I don't want to be getting 30% tax relief now, only to be hit with 40% income tax in retirement

Conversely who would pay in now as a 20% rate tax payer when they might get 30% next year? I prefer ISAs currently outside of tax for a retirement income. You might find an ISA focus could let you drop a tax code.

I doubt anything would happen instantly or retrospectively so I guess 24/25 is the likely outcome, but I know I cannot know so I'm sticking to my plan trying not to get worked up on 2nd guessing and wait to see.

Do you think a 20% taxpayer could qualify for 30% tax relief? Surely any tax relief you can get can't exceed your marginal rate of tax.

I agree that there's no point second guessing because any thing that Labour introduce won't take effect until next tax year at the earliest.  Having said that, it is interesting to think about different scenarios and how you would change your behaviour

UrbanAchiever

My kids get 20% tax relief on their SIPP contributions, but their marginal rate of tax is zero.  So, yes you can get tax relief in excess of your marginal rate.  Same for adult non-tax payers like my wife.

af1963

Surely any tax relief you can get can't exceed your marginal rate of tax.

It can.   Currently, people who pay no tax, so have a marginal rate of zero, can receive tax relief.

kempiejon

Mark_d said:

Do you think a 20% taxpayer could qualify for 30% tax relief? Surely any tax relief you can get can't exceed your marginal rate of tax.

I agree that there's no point second guessing because any thing that Labour introduce won't take effect until next tax year at the earliest.  Having said that, it is interesting to think about different scenarios and how you would change your behaviour

Well as this is just speculation yes I think that possible why not a flat rate of 30% for all on the way in. Some individuals can currently claim more in tax than paid by using SIPP contributions.  But I also know I can't know what'll happen. For ages 40%ers have been able to game the system getting more relief on the way in than the way out. Basic rate payers get the 25% TFLS as a bonus but the tax benefit is only deferred.