“I heard it through the Grapevine”
(Marvin Gaye 1939 - 1984)
There are many rumours circulating around what the Chancellor of the Exchequer will and won’t announce in his budget on the 16th March.
What we do know is the lifetime allowance will be reduced to £1million from £1.25million presently and HM Revenue & Customs have released several vague and often contradictory articles on the protection available to those who are close to or will already have exceeded the £1million limit when these changes come into effect.
Another change is the reduction in annual allowance for further rate taxpayers. For each £2 earned over £150,000 the available allowance will reduce by £1. Rest assured that at Courtiers we are monitoring the situation and as part of our commitment to providing a bespoke service to each and every one of our clients, we are contacting those who we feel may be affected by these changes and developing a strategy to best mitigate any threat these may pose to our clients’ long term objectives.
What rumours are gathering the most pace? Well, the main persistent rumour that refuses to go away is the possible change to tax relief on pension contributions. At present most individuals receive tax relief on contributions up to £40,000 per annum (or up to that of their salary if it is lower than this amount or £3,600 for those with no income.) at their highest marginal tax rate. This could be between 20-45% depending on your level of income. One of the key changes that has been speculated upon for many years but will not go away is the introduction of a flat rate level of relief. Various sources have predicted this to be anywhere between 25-35%. The reason for this is to further incentivise basic rate taxpayers to pay into their pensions while also reducing the £7billion burden that higher rate relief places on the Chancellor’s coffers.
One hugely radical change that has been examined by the treasury is to change from the existing model to an ISA style pension system whereby funds going in to build the pension pot will not receive tax relief but when withdrawn will be tax free. It may also mean the end of the 25% tax free lump sum that people can currently draw from their pensions. While this would have the advantage of bringing in added tax revenue to the treasury by reducing the burden of tax relief it would also close the loopholes associated with salary sacrifice.
At the moment this is pure speculation and the rumours will be flying around until the big day when we finally find out what Mr Osborne has in store for us all.
At present my advice would be to keep checking our website for further information and insight, and to follow our Twitter page for daily updates.
Paul Kemsley BSc (Hons), Dip CII
Tax Treatment depends on individual circumstance and is subject to change.
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