By TIM STALKARTT 13/02/2012
We would like to alert you to new restrictions that could be introduced in the Budget on 21 March relating to the amount of tax relief that you can claim on pension contributions.
Similar stories have circulated in the past but, for the first time, Danny Alexander, Chief Secretary to the Treasury and one of the architects of the Coalition government, has confirmed in an interview with the Daily Telegraph that he is pushing to reduce ‘overly-generous tax relief for the better-off.’
At present, a 40% or 50% rate taxpayer can claim tax relief up to their highest marginal rate. This means £10,000 in a pension could effectively cost 40% rate taxpayers as little as £6,000 and top rate taxpayers just £5,000, provided you have paid enough tax at that rate to qualify.
Alexander pushes for basic rate tax relief
Mr Alexander has signalled that he would like to see tax relief limited to the basic rate of 20% for all taxpayers irrespective of how much they have paid.
Act before 21 March 2012 to take advantage of tax relief of up to £100,000.
Whilst there has been no confirmation of any change in government policy, previous changes to the rules to restrict tax relief were announced by former Chancellor Alistair Darling without prior warning. ‘Anti-forestalling’ legislation was enacted on Budget day and immediately closed tax-planning opportunities.
Act now to protect your pension relief
If you are considering contributing to your pension in this tax year and pay tax at a rate of 40% or 50%, we urge you to consider doing so now, and importantly within the next 5 weeks before Budget Day.
Remember, the Chancellor introduced generous ‘carry forward’ rules for this tax year that mean you might be able to boost the value of your retirement savings by up to £200,000 and benefit from up to £100,000 of tax relief.
The rules on tax relief are complex and we want to help you make the most of this relief whilst it is available.
If you are unclear about how much you can contribute to a pension now or the impact of the new lower Lifetime Allowance being introduced in April 2012, please call our investment professionals on 020 7189 2480. They would be pleased to help you.
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The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.