Speculation mounts over Sunak tax tweaks
WITH just over two weeks to go until new Chancellor Rishi Sunak’s first Budget, there is much speculation about whether he will play around with the current tax relief regime for pensions. It may be that we will see the higher rate tax relief granted to top earners disappear in favour of a system that allows tax relief for all taxpayers at the basic rate of tax, 21 per cent in Scotland and 20 per cent in the rest of the UK. This move might save the exchequer about £10billion but the word is that it will be too bitter a pill for Tory backbenchers to swallow and the Chancellor will leave it alone for this year at least. There are probably just as many commentators who think that the Chancellor will cut tax relief as has been hinted, since a lot of Tory MPs believe that top earners have had too much of a good thing with their pension planning over the years. A halfway house could be that the Chancellor creates a new rate of tax relief for all taxpayers at 30 per cent, meaning high rate taxpayers and additional rate taxpayers will lose out significantly, while basic rate taxpayers will see an increase to the amount of tax relief they get on their pension investments.
The other option that the Chancellor has is to restrict the amount of tax relief that higher rate taxpayers can receive by further limiting the amount they can pay into their pensions on an annual basis, or over the course of their lifetimes.
At the moment, both of these figures are limited and it can involve some complex calculations to work out how much you are allowed to pay into your pension in any one year and how much it’s worth at the end of your working life.
Simplicity on either issue would be welcomed – and some would say there is no need to limit both the annual amount and the lifetime amount as by doing one you are effectively doing the other.