PERSONAL ACCOUNT

Of all George Osborne’s idiotic taxes, this one is surely the worst

My colleague Richard Dyson, whose column normally appears here, has often used this space to highlight the idiocies of Britain’s labyrinthine tax system, in particular the new taxes introduced by George Osborne.

We have seen the absurdities of the tax that you pay on losses rather than gains, courtesy of the inane and incoherent income tax regime for buy-to-let landlords. The delights of the stamp duty surcharge, which penalises some couples for being married and others for being divorced, have also been exposed.

Both of these monstrosities require immediate removal from the statute book and Theresa May, despite her many pressing duties, should ensure that it happens.

But now it appears that an even more ludicrous piece of tax legislation exists among Mr Osborne’s unappealing legacy.

This week exposed the almost unimaginably complex task that awaits pension savers who fear they may be caught by the new “taper” that applies to the annual allowance for pension contributions (you can find the story at telegraph. co.uk/pensions-retirement).

The measure reduces the normal limit of £40,000 a year gradually when your income reaches £150,000. But deciding whether you will be caught by the restriction, which you will need to do if you plan to make significant pension contributions, or if your employer does so on your behalf, is all but impossible. Even tax experts have told us that they struggle to cope with the intricacies.

For one thing, the law requires you to look at two separate measures of income, “threshold” and “adjusted”.

Threshold income includes income from all sources, not just your salary. Then, in a further twist, pension contributions themselves need to be taken into account, in what one accountant called a “chicken and egg” situation.

High earners who are also members of final salary schemes, such as doctors, face an especially arduous task as determining what counts as a “contribution” to such schemes is far from straightforward.

That’s not all of the ins and outs but I’ll spare you the rest. The upshot of it all is that many people who earn £100,000 could be caught by a tax that is supposed to apply only to those who earn half as much again. These people have a number of options, none attractive.

They can attempt to work through the calculations themselves, although the fear will be that they miss something and end up paying tax on their contributions or paying in less than they could have done.

They could hand this task over to a professional, although this would of course cost money. Or they could take the path of least resistance and simply restrict their contributions to £10,000. This guarantees that they won’t face an unexpected tax bill later on, but could mean missing out on tax relief on £30,000 of contributions – a sizeable sum.

Highly paid public sector workers such as doctors could fall foul of the new ‘ tax taper’ on pension contributions