Rumours are rife that the Chancellor of the Exchequer, Rachel Reeves, is poised to end tax relief on pensions.
This comes as she prepares for her first Budget at the end of October. Given that the government have prioritised ‘restoring the nation’s finances’, it is highly possible the ground is being laid for a tax squeeze.
What does this mean in practice? The temptation may well be to tweak tax relief on private pensions, currently offering 56% income tax relief at the higher rate, with an extra 7% at the additional rate.
Reeves may opt to reduce pension tax relief to 20% which, while leaving basic-rate taxpayers untouched, would represent a big reduction for those receiving higher and additional rates of 40% and 45% relief on their pension contributions.
Another possible move could be a 30% rate for everyone, which would be good news for basic-rate taxpayers, but less favourable for higher and additional contributors.
At this stage, everything is still in speculation, and the government may well decide to weigh up economic goals against sensitive political outcomes, particularly with the introduction of anything that could be characterised as a ‘retirement tax’, or indeed any policy that could be seen as detrimental to investment and economic growth.
The government may well yet decide to swerve pensions altogether, and instead target inheritance tax, which is currently tax-free for those passing away before 75.
If you are retirement or inheritance tax planning in Cheshire, contact Hartey Wealth Management today to discuss suitable financial planning solutions for you.
