Tax Relief on Pension Contributions
Over the last few years there have been major changes to pensions, with the 2014 budget widening the choice on how pension benefits can be taken.
In 2006, limits were introduced on how much could be held in pensions, and restricting how much could be paid in. Whilst these did increase over the following years, both limits have since been decreased to below their original levels, which many people think is unfair.
Pension tax relief
After a consultation in July 2015 asking for views on how the system could be reformed, pension tax relief is now in the Government’s sights. Currently, tax relief is available on pension contributions at 20%, 40% and 45%. One of the suggestions is that it could be replaced by a new flat rate of 25-33%. This would be good news for basic rate tax payers but would hit relief for those who pay higher rate tax. The question is not only IF any reforms were to take place, but also WHEN they would be introduced.
What this means for you
If you are considering making a pension contribution, what should you do? No-one is expecting pension tax relief to be extended in the budget, so it’s unlikely that higher rate tax payers will lose out by making a contribution before then. However, there is always a possibility that it could happen, and there will be no certainty until Budget Day itself.
* Levels, bases of and reliefs from taxation may be subject to change, and their value is dependent on the individual circumstances of the client.