Pension tax relief could be hit by Rishi Sunak in silver bullet for Treasury

Budget 2021: Experts outline state pension changes

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Chancellor of the Exchequer, Rishi Sunak, announced during his Budget on Wednesday that the Government will consult on changes to the regulatory charge cap for pension schemes. Mr Sunak said: “Innovation comes from the imagination, drive and risk-taking of business. “It’s why I’m announcing today, we will consult on further changes to the regulatory charge cap for pension schemes, unlocking institutional investment while protecting savers.” The Budget was otherwise light on changes to pensions and other areas of taxation.

However, CEO of Blick Rothenberg, Nimesh Shah, tells Express.co.uk that Mr Sunak could look to reduce pension tax relief in the future.

He said: “I don’t think pensions will ever be done with, the elephant in the Treasury is definitely tax relief on pension contributions.

“There’s a number out there which says higher rate and additional rate tax relief costs the Government £25billion a year.

“They have chipped away at the £40,000 annual allowance people can contribute to a pension and get tax relief on, they’ve chipped that away for higher earners.

“It’s now about whether they want to pull the final trigger and say tax relief on pension contributions will now be limited to the basic rate of 20 percent.

“That’s a very anti-Conservative policy, it’s almost 50/50 on whether that would happen. But that would be the silver bullet for the Government in terms of raising revenue.”

As things currently stand, the Government incentivises saving into your pension pot with tax relief.

When you earn tax relief on your pension, some of the money you would have paid in tax on your earnings goes into your pension pot rather than to the government.

Tax relief is paid on your pension contributions at the highest rate of income tax you pay.

Basic-rate taxpayers get 20 percent pension tax relief while higher-rate taxpayers can claim 40 percent pension tax relief.

Additional-rate taxpayers can claim 45 percent pension tax relief.

Mr Shah also thinks the pension lifetime allowance could be further reduced as a way to bring more people into the tax net.

The lifetime allowance is currently £1.073million, and has been frozen until 2026.

Mr Shah said: “The lifetime allowance was frozen in March, and has been brought down from £1.8million. It has been constantly brought down.

“Now it’s at just over a million, and it is frozen at that level for another five years.

“I think that it is something which is attractive for the Government and I can see it coming down, definitely, in the future.”

Along with the pension lifetime allowance, the inheritance tax threshold was also frozen at £325,000 until 2026.

Mr Shah warns that the Government is using stealth taxes to rake in more cash.

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He continued: “That has been the mood since March. In the March Budget they estimated freezing the allowances (of the pension lifetime allowance, income and wealth taxes) was going to raise £21billion come 2026.

“It’s a very clever tactic from the Government because you don’t necessarily notice it happening. The inflationary aspect which you don’t necessarily pay much attention to is constantly eroding your wealth over that period of time.

“It was badged as a stealth tax back then and that’s exactly what it is. People need to be wise to this, they need to be wise to inflation, they need to be wise to the fact they are getting clobbered with more tax.

“People also have to bear in mind the 1.25 percent increase in National Insurance coming in next year, and if anything that could go up in the future.”

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