Chancellor set to ease burden on GPS
THOUSANDS of high earners look set for a tax boost on their pension contributions, as Rishi Sunak attempts to ease the workforce crisis in the NHS.
The Chancellor is expected to tackle pension tax relief in next week’s budget by raising the point at which tapering starts from £110,000 to £150,000.
But Steve Webb, pensions minister in the coalition government, warned such a change was a “missed opportunity”. He said: “It remains a complicated system and there will still be people who get unexpected tax bills. With coronavirus we want doctors at work, not worried about unexpected tax bills.”
The Conservative manifesto promised within 30 days of being elected the Government would address the “taper problem” in GPS’ pensions, which had caused senior NHS doctors to reduce their hours to avoid punitive tax bills.
Mr Webb, now a partner at business consultancy Lane Clark and Peacock, said that rather than “traditional Treasury tinkering”, Mr Sunak should use the Budget as “an opportunity to streamline and get rid of the taper altogether”.
Pension contributions benefit from relief paid at the saver’s highest rate of income tax.
It costs a basic-rate payer £80 to make a £100 pension contribution, while a higher-rate taxpayer pays just £60 for the same effect, and an additional-rate taxpayer £55. A tapered annual allowance was introduced in 2016, gradually reducing it for people earning above £110,000. The taper means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.
The Government had previously considered cutting pensions tax relief for high earners from 40 to 20 per cent in a move that would have raised £10billion a year. But Mr Sunak faced fierce opposition from Tory backbenchers and is believed to have shelved the plans.
David Davis, the former Brexit secretary, said it would be “political madness” and “a moral disgrace and an economic farce” to slash pension tax relief for higher earners. It follows warnings against pursuing an “incredibly damaging” plan to scrap entrepreneurs’ relief.
The Chancellor is said to have considered scrapping the £2.7 billion tax break to fund nurses and police officers, and projects to help “level up” regional economies.
The relief allows business people to pay a 10 per cent rate of capital gains tax when they sell qualifying assets, compared with the usual 20 per cent.
It was introduced in 2008 by Alistair Darling amid concerns that changes to capital gains tax would harm small business owners. Lord
Leigh of Hurley has organised a letter to Mr Sunak, signed by more than 150 entrepreneurs, warning that ending the tax break would mean people might consider starting their new businesses overseas.
The Resolution Foundation branded it the UK’S “worst tax break” and the Institute for Fiscal Studies said there was no evidence it encouraged investment.
Meanwhile, Mr Sunak is expected to scrap the red diesel rebate in his budget statement next week.
This will mean users of diesel powered construction machinery would pay an extra 47p per litre of diesel, generating £2.4 billion more every year for the Treasury.