Pension contribution tax relief set to fall again – act now
No sooner have the pension rules changed and they are potentially set to change again. We have already looked at the availability of tax relief for high earners as this will be severely reduced for those earning over £150,000 in April 2016.
But there is also a strong possibility of further changes to pension tax relief for all in the near future. The cost of pension tax relief is currently £34 billion and with ongoing austerity this is an area the Government may wish to target for future savings.
Pension rules consultation
In the Summer Budget the chancellor opened a consultation looking at pension tax relief and considers some big changes, including the removal of pension contribution tax relief altogether. Although we don’t expect the change to be this radical it is widely expected that the rate of tax relief will fall.
The most likely outcome will be the removal of higher rate tax relief, possibly with a flat rate of tax relief for all and a rate of 30% has been mentioned in the past (which will be good news for basic rate taxpayers). The consultation closes in September and with an Autumn Statement by the Chancellor scheduled for November 25th there is the possibility that any change could be announced then (And effective immediately).
We don’t have a crystal ball unfortunately but if you are a high earner or higher rate taxpayer and intend to make a pension contribution this tax year anyway we think you should consider doing this now given the risk of potentially losing out on significant tax relief.
Fall in the lifetime allowance
It has already been announced that the overall amount you can have in a pension fund without incurring tax charges is set to fall to £1m (currently £1.25m) from April 2016. There is scope now if you are near or over that limit to top up ahead of this change and then claim the latest protection for your fund.
Possible to make larger contributions
It may also be possible to carry forward unused pension allowances from previous years to make a larger contribution either personally or through your company and this ability will continue in 2016/17.
This includes the ability to carry forward up to £40,000 from the period from 6th April 2015 to 8th July 2015. So even if you have already made a contribution in this tax year it may be possible to pay more in.
If you want to discuss your individual circumstances please speak to your usual Old Mill contact.
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