Brewin Dolphin one of the UK’s leading wealth managers is urging higher earners to act swiftly to take advantage of existing pension tax reliefs while they are still available – ahead of anticipated changes in the July Budget. Additional rate taxpayers could lose as much as 13,500 this year if they don’t act swiftly to take advantage of existing pension rules while they are still available.
The newly-elected Conservative government included plans to reduce pension tax relief for anyone earning more than 150,000 in its election manifesto. And with a Budget due on 8th July, there may not be much time left to make the most of the current tax reliefs. Currently everyone can contribute 40,000 a year to their pensions and gain full tax relief on this contribution.
However, the Conservative party manifesto suggested that the annual allowance will be reduced by 1 for every 2 an individual earns over 150,000. Someone earning 190,000 would have a 20,000 allowance while someone earning 210,000 and over would have a 10,000 annual allowance.
This would reduce the tax relief on a full annual pension contribution from 18,000 to 4,500 for someone earning 250,000. The new rules could come in immediately after Mr Osborne gives his Budget on July 8.
While the timing of any change is not known – there is a possibility they could be introduced as early as the Budget, or delayed until April 2016 – but Brewin Dolphin said it would be prudent to take steps now.
Tim Walker, Divisional Director and Head of Office at Brewin Dolphin in Exeter, said that additional rate taxpayers should put as much into their pension pots as possible before July 8. “It may be sensible for some additional rate taxpayers to contribute the maximum amount into a pension, while the current tax reliefs and contribution limits are available, as long as they have sufficient disposable income and can afford to do so.”
He points out individuals currently making regular monthly payments into a pension may want to consider bringing forward any planned contributions, before 8th July, to make the most of the allowances still available.
Brewin Dolphin is calling on the Government to encourage people to save for their pensions, by making the rules around pensions clear and compelling.
Mr Walker added: “the continual changes to pension rules – particularly around the Lifetime and annual Allowance – creates further distrust and confusion around saving into a pension. We believe having a cap on contributions is a fairer system than penalising growth, by capping the lifetime value of individual pension funds.”
Mr Osborne reduced the value of the Lifetime Allowance from 1.5m to 1.25m, and it will fall again to 1m in April 2016. Any pension savings above the limit will lose valuable tax relief and suffer a crippling 55pc tax rate when it is eventually withdrawn as a lump sum.