Pension tax relief for high earners about to be cut?
It was pretty inevitable that the tax relief on pensions would be affected in this Parliament, whoever got in.
Labour had planned to limit pension tax relief to 20% for anyone with income over £150,000. They also planned to reduce the annual allowance from £40,000 to £30,000 for all investors.
The Liberal Democrats were thinking of a single rate of tax relief for everyone and a rate of 33% was mooted.
The Conservative manifesto too had included plans to cut pension tax relief for anyone earning more than £150,000, and once elected, previous governments have tended to move fairly swiftly to implement their key changes.
As the Budget has been announced for 08 July, it means that high earners may not have that long to continue to benefit from the current levels of tax relief.
The Conservative manifesto further talked about reducing the £40,000 annual allowance that currently applies to pension contributions, including employer pension contributions and benefits built up in final salary schemes. The proposal was to cut this by £1 for every £2 an investor earns over £150,000. So for someone earning £190,000, their allowance would be £20,000 and for anyone earning £210,000 or more, their annual allowance would be only £10,000.
Whilst there are no guarantees about when any changes would come into effect - for example whether they are introduced immediately, retrospectively, or from the start of the next tax year - if you are a high earner, it may be that you now have only a short window in which you can make contributions at the current levels of tax relief.
To discuss your pension planning options, talk to Kellands today.