Osbourne's tax relief changes in the March budget

chiefie · 2 January 2016 at 7:27PM

Hi

Anyone got a strong view as to whether he will change the 40% tax relief ? I can't see him being able to do it quickly due to the changes in IT systems that may be required - it will also be a big hit in one go.

Sterlingtimes · 2 January 2016 at 8:38PM

The Telegraph has just speculated either 30% or 25% tax relief for all with both Life Time Allowance and £40,000 limits being abolished.

For me (approaching retirement) like many others this is a worrying time. Will it take effect this Tax Year? Presumably, any attack on the 25% tax free allowance would lead a huge number of people taking theirs immediately.

robin61 · 2 January 2016 at 9:06PM

Yes it is worrying but everyone is just guessing. I personally think any attack on the 25% PCLS would be a big vote loser but 30% for everyone would be an overall vote winner because there are more basic rate taxpayers than higher rate.
This idea about a pension ISA with no tax relief is a none starter. Who the hell would trust a future government not to start taxing the income later ? Not me that's for sure.

RickyB2000 · 2 January 2016 at 9:30PM

It is an interesting one. I'm not totally convinced he will remove the 40% tax relief. In theory, it will mean higher earning members of DB pensions have to pay increased contributions (like MPs). Or see their benefits reduced. He has already killed off most avenues for very high earners to take advantage of pensions. It's also removing a lot of cash from investing in the markets that may 'slow' growth.

I wouldn't be surprised if there is a lot of noise about this to 1) funnel money into stock markets to bolster them and 2) to get a feel good factor on budget day.

I am often wrong though!

RickyB2000 · 2 January 2016 at 9:36PM

robin61 wrote: »

Yes it is worrying but everyone is just guessing. I personally think any attack on the 25% PCLS would be a big vote loser but 30% for everyone would be an overall vote winner because there are more basic rate taxpayers than higher rate.
This idea about a pension ISA with no tax relief is a none starter. Who the hell would trust a future government not to start taxing the income later ? Not me that's for sure.

If it is about raising cash, I can't see him giving 30% to lower tax payers. That must massively outweigh the benefit of reducing it on those tax payers who can still make sizeable contributions (higher rate who have not been impacted by tapering). I also wonder how many lower / no tax rate payers would really care - something they may get in 30 years time (markets dependent) when most are suffering from cost of living increases. Also, will DB pensions for low rate tax payers improve, if so then even more expensive for the government. If not, then no benefit to low rate tax payers in public sector. DB Private is similar - increased benefit or do they just pocket the difference?

EDIT: on the 25% tax free, for most low rate tax payers who are not being matched by an employer or via salary sacrifice, the incentive to save in a pension is pretty much gone. An increase to 30% tax relief with the removal of 25% tax free lump sum would make it valuable again. But again, how many people would take the 10% extra (plus compounding) later rather than the cash today

Snakey · 2 January 2016 at 10:11PM

The LTA isn't the same thing as the PCLS. I don't think there are any current proposals to bin off the PCLS (which is not to say it won't happen, but I don't think it featured highly in the recent condoc. There have been threats to curtail or abolish it for about the last twenty years, but nobody's had the appetite to do it. It's a valuable benefit for all taxpayers).

It is entirely possible that they will get rid of higher rate relief and also salary sacrifice. This would make pensions much less worth the bother for a lot of us who have cushy numbers all set up with employers NI uplifts and so on, presumably they won't care as they'll take the view that whatever we "rich" people do with our spare money we still won't be a burden on the State in retirement.

I will be very interested to see what happens, and also to what timescale - will we all get a year or two to make hay, or will it be an "as from today" (you'd think not, because it would take a while to change all the systems - March's salaries will already be being processed by Budget Day), or what? If the changes are significant it could mean a lot of people having to re-work their whole financial plan.

People close to retirement will probably be OK as I expect there'll be some protection for pots already accrued.

Where I lose the plot when it comes to guessing, is when it comes to DB pensions, especially with whatever extra rules and safeguards they have for public sector workers. I only understand DC ones really. So when I mull over the various options, I get stuck at the point where I start to wonder whether any particular way of doing things would be workable across the board. I mean you'd think this would be a wonderful opportunity to stick the boot into the public sector (who probably aren't Tory voters anyway) by making it so that their pensions cost them more personally (by way of tax payments, rather than extra contributions which they are presumably not allowed to force).

robin61 · 2 January 2016 at 10:11PM

RickyB2000 wrote: »

If it is about raising cash, I can't see him giving 30% to lower tax payers. That must massively outweigh the benefit of reducing it on those tax payers who can still make sizeable contributions (higher rate who have not been impacted by tapering). I also wonder how many lower / no tax rate payers would really care - something they may get in 30 years time (markets dependent) when most are suffering from cost of living increases. Also, will DB pensions for low rate tax payers improve, if so then even more expensive for the government. If not, then no benefit to low rate tax payers in public sector. DB Private is similar - increased benefit or do they just pocket the difference?

EDIT: on the 25% tax free, for most low rate tax payers who are not being matched by an employer or via salary sacrifice, the incentive to save in a pension is pretty much gone. An increase to 30% tax relief with the removal of 25% tax free lump sum would make it valuable again. But again, how many people would take the 10% extra (plus compounding) later rather than the cash today

It should be interesting in March. I just think the least likely is taxing the PCLS. Anything is possible though.

saver861 · 2 January 2016 at 10:16PM

Sterlingtimes wrote: »

Presumably, any attack on the 25% tax free allowance would lead a huge number of people taking theirs immediately.

Well not those that would be pushed to a higher tax bracket.

Snakey · 2 January 2016 at 10:23PM

robin61 wrote: »

This idea about a pension ISA with no tax relief is a none starter. Who the hell would trust a future government not to start taxing the income later ? Not me that's for sure.

Thinking about this one, while that was my gut reaction as well, as time passes I'm not sure it makes sense as a prediction of what the public will think.

Are we all sitting here worrying that a future government might decide to tax any other post-tax capital/savings (for example, our actual ISAs) on withdrawal? Nope, in fact I bet it's never occurred to anybody. We understand that in the future the tax-exempt status of the account might be withdrawn (i.e. "from now on, all your interest and dividends received in your ISA accounts will be taxed"), but we would never imagine that the whole thing would be taxed when taken out as if the entire balance were taxable income.

I don't think it's what they will actually go for, but I think it could be done, if that's what they decided they wanted, and that people would still go for it - especially if there was an uplift on the way in (you could always withdraw this benefit at a later date, once people had got used to saving).

taktikback · 2 January 2016 at 10:45PM

very interesting thread - and some critical decisions to be made!

Of course, if he does go for a 30% (33 is the soundbite choice but probably too expensive..) basic rate of tax relief, then that effectively does for salary sacrifice even for basic rate tax payers who currently benefit from 20 + 12%NI.

The interesting one is if he DARES meddle with the holy cow of 25% tax free. There would be rioting in the streets if it wasn't comprehensively protected for existing pots - and would create a mad dash for whatever period there was before it's implemented...

The ISA is a non-starter - pay tax now for a promise later...be serious...

nope - generating taxable income for the retired is what it's all about - demographically, it's got to be that way or the country will go bankrupt!

robin61 · 2 January 2016 at 10:50PM

As one of the others was saying the uncertainty is a worry especially if you are close to retirement. All we can do is wait and then adapt plans accordingly.

Osbourne's tax relief changes in the March budget

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