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Where Now For Pensions Tax Relief?

At a recent conference I attended it was clear that those working close to government felt that tax relief on pensions was just too attractive a saving opportunity for the government.

The most recent stats show that in 2013-14 the tax relief cost £34.3 billion and the saving to employers alone in NI was £14 billion (National Statistics).  With a government not reaching its budgetary targets, curbing these reliefs would be most welcome.    The most obvious change is a flat rate pensions addition equivalent to basic rate tax relief.  The problem with this route is that company contributions would in effect retain the higher rate reliefs.

A second almost certain change is to do away with “salary sacrifice” schemes which cost billions in lost National Insurance.   Longer term the current range of suggested replacement vehicles for pensions look to be as follows:

  • EET  Exempt in, Exempt growth, Taxed Income (ie the status quo)
  • TEE Taxed in, Exempt growth, Exempt Income (ie an extension of the ISA regime)
  • TET Taxed in, Exempt growth, Taxed Income
  • TES Taxed in, Exempt growth, Income payments enhanced or subsidised by the government (a system similar to the Swiss who subsidise annuities).

The writing is on the wall for higher rate tax relief and this combined with the new Taper of annual allowances suggests that any higher rate taxpayer who has allowances available should bring them up to date before the end of this tax year.



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