Government signals higher rate tax relief to go

Government signals higher rate tax relief to go

A pension bombshell was hidden away in a consultation paper released alongside yesterday’s Autumn Statement. Although skilfully nuanced in terms Sir Humphry Appleby could have been proud of, the message was plain for all to see. 

The paper warned that “The cost of tax and National Insurance contributions relief on pension savings is one of the most expensive sets of relief offered by the government” and stated “around two thirds of the tax relief is going to higher and additional rate taxpayers”. Whilst celebrating the success of Auto enrolment they deliver a warning that will send a shiver down the spine of higher rate tax payers by saying “The government is committed to enabling individuals to save more so that they have security in retirement, but it is important that resources focus where there is most need”.

A flat rate pension at say 25% or 33% would help where the government considers there is most need – the so called ‘Just About Managing’ by giving them extra incentive albeit at the expense of higher rate taxpayers. Indeed, let us not forget they re-committed yesterday to taking swathes of taxpayers out of higher rate tax by rating the threshold to £50,000 by the end of the parliament which will reinforce this belief. 

Higher and additional rate taxpayers should take note and make the most of the current system of tax relief before the spring Budget. The government has made clear its intention, people affected should take professional advice and make the most of the current system while they have the opportunity.

Matthew Brown
Private Client Partner

Article first appeared (25th November 2016) in:

Pensions Age: MPAA consultation hints at future pension tax relief change
FT Adviser: Treasury rejects claims it will slash pensions tax relief
Financial News: High earners beware – they are coming for your pensions

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