Nearly a month after our new Government took power, there continues to be an increasing number of questions and concerns about how they are going to finance their spending promises.

Many of you are beginning to ask us what the potential implications for your taxes could be under this new administration.

Understanding your concerns, we want to respond to your questions as quickly and comprehensively as possible. However, without clear details from the Government, this is just not possible yet. So, until we know more, we want to give you some initial thoughts on possible changes that are coming and what you could be doing to prepare.

Over the next few posts we will share our thoughts about what changes could be made to taxation on pensions and Capital Gains Tax (CGT). In this post we will look at pensions.

Pensions

Pension contributions and tax relief

Currently, pension contributions made by basic rate taxpayers within the Annual Allowance of £60,000 are tax free. However, if you are a higher rate taxpayer, within the current rules, your pension contributions can reduce the tax you pay on your earnings by the same percentage as the highest rate you are taxed at: for higher rate taxpayers this is 40% and for additional rate taxpayers, this is 45%.

See our YouTube video [https://www.youtube.com/watch?v=j8g4jD1GZFE] or contact us for more detailed information.

Potential proposals suggest either restricting pension contribution tax savings to the basic rate (20%), or perhaps making it a flat rate of 30%. While a flat rate of 30% could potentially bring a small pension top up for basic taxpayers, either percentage restriction would mean that higher rate taxpayers would lose out on tax relief from their pension contributions.

There is much more detail to this complex pension calculation than we can explain here but in simple terms, restrictions to tax relief based on pension contributions would mean that those on higher incomes would end up paying more tax than in the current system. And, with the number of people earning at the higher rate of income expected to increase in the coming years, politically, this could be an easy way to raise significant funds.

Annual allowance – The pension annual allowance is the maximum amount you can save into your pensions in any one tax year without having to pay a tax charge. Currently this allowance is £60,000 for individuals, but we think it likely that this will come down (afterall, it was only £40,000 as recently as the 22-23 tax year).

We think that changes could also be made to ‘carry forward’ (utilising unused annual allowance from the previous three years) and ‘tapering’ (restrictions on how much people earning over £260,000 per annum can save into their pension during a tax year) rules too.

What can you do?

With your pension situation being unique to you, we strongly recommend that you seek professional advice if you are concerned about possible changes to pension rules.

Even though we don’t know what eventual changes might come, it’s worth understanding any potential impact of change. We have already assisted a number of our clients in calculating the maximum contributions that can be made into their pension pots under the current rules, so are more than ready to help you consider your options so that you can make the best decision for your particular circumstances.

For more information, detail or to discuss your personal circumstances, give us a call. As always, LSR Partners are here to help.

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