If you are a higher rate taxpayer and a current pension scheme member this blog is for you.
March 16th is the crucial date. That is the date of the next budget. What is certain is that George Osborne will announce the outcome of his review into pension tax relief. The Financial Times and others are reporting that he is planning the removal of higher rate tax relief for pension contributions and replacing it with a flat rate relief of between 25% and 33%.
It seems inevitable that the shutters will come down immediately. They will not create a “buy now whilst stocks last” situation.
The potential tax cost if you don’t take this seriously is huge. Whilst the maximum contribution on which most people can get tax relief is £40,000 per annum you can use any unused contribution limits from the past three years as long as you were a member of a pension scheme in those years. The total allowable contribution can be well in excess of £100,000. If tax relief is reduced to 25%, on a £100,000 contribution your tax relief could be reduced by as much as £20,000.
- Even if you don’t want to pay more, think about bringing forward the next 12 month’s contributions.
- If you are over 55 there is even more incentive to maximise contributions. Just book a telephone conversation with me and I will explain why.
- Check how close you are to the new Lifetime Allowance of £1,000,000. Even 40% tax relief is probably not worth it if you will pay tax of 55% on the proceeds. Again if you need help book a call.
- Talk to your pension advisor. If he/she hasn’t alerted you to this situation ask why not. The “no advice” online services such as Hargreaves Lansdown may be a good alternative if you are not getting the service you expect. If you need some guidance book a call.
- Like to do your own research? The following link is a good starting point: Major Changes to Pension Tax Relief
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