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Reforms on tax relief are being eyed by Chancellor Phillip Hammond, says Daryl Franklin at Woodward Markwell

June 2019


FOR HOW MUCH LONGER WILL THE TAX MAN GIVE YOU MONEY?

Over the last few years, the Government has altered the rules on pension contributions and allowances many times. This was done to cut down upon, not only the amount of tax relief the HMRC was having to refund to individuals and companies, but also the amount that was not able to be added to an estate for Inheritance Tax purposes.

Not only are some individuals with historical pension savings (of their own or from their employer’s contributions) now having to pay additional tax on their retirement "pots" if over certain limits, there are also limits on pension contributions that can be placed into a pension to gain tax relief. For anyone who has accessed taxable income from a pension plan, which wasn’t of the guaranteed income variety, the pension contribution limit is now only £4,000 per annum.       

All employers must now have a Qualifying Workplace Pension Scheme, resulting in more people being members of a pension scheme. According to the latest figures, HMRC are going to be paying some £25.6 BILLION in pension tax relief this year to those who pay into pension plans. *           

Phillip Hammond (the current Chancellor) described tax relief on pensions as ‘eye wateringly expensive’ and it’s almost certainly going to remain in his sights for some time.  Changes may be announced before the end of 2019, assuming the situation with Brexit is resolved.  

Another factor affecting tax relief having to be paid out, is Pension Freedoms being introduced in 2015. Whilst the "freedoms" themselves do not affect Corporate or Individual tax relief; it did bring pensions to the forefront of the public’s mind. Resulting in many savers in their 40’s and 50’s using pensions as an alternative to Cash ISAs or on top of their Stocks & Shares ISA’s especially bearing in mind the addition of 20%/40%/45% tax relief paid on top of pension premiums.

The question is, how long will this ‘giveaway’ of tax relief last for companies or individuals? Will the 40% and 45% pension tax relief for higher and additional rate taxpayers, be taken away?  Will a Chancellor look at the corporate tax relief side, as well as the individual? Many companies receive corporate tax relief on pensions and Group Life Assurance premiums, and a reduction in the amount received could be another way of reducing future increases in tax relief paid out by HMRC.

Whilst we cannot predict the future, what we do know is that, under current legislation, these reliefs are still available for individuals, so it is worth considering whether these are something you can benefit from.

For further guidance on the benefits of saving within a pension plan, you should seek Independent Financial Advice.

Daryl Franklin

Independent Financial Adviser at Woodward Markwell

 

 

*Sources available upon request.