Pension: Savers could face ‘double tax’ in Treasury tax relief reform

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Pension tax relief is often seen as one of the major benefits of saving towards retirement. Tax relief means some of the money a person saves that would have gone into government coffers as tax is instead rerouted into a pension. As such, tax relief is a significant incentive for many people who are hoping to make their savings grow.

Tax relief is paid on pension contributions at the highest rate of income tax a person is subject to.

This means basic rate taxpayers will receive 20 percent in pension tax relief, while higher rate taxpayers currently claim 40 percent.

However, concerns have risen recently after rumoured proposals the Treasury is looking to cut higher-rate tax relief for pension savers.

Reports have suggested the Chancellor is looking to scrap the higher rate of relief, reducing it to a flat rate of 20 percent for all.

This could create substantial changes for those who are currently receiving a higher rate of pension tax relief.

This is because while tax relief during their working years would be set at 20 percent, they would be charged a tax rate of 40 percent during retirement.

Such a change is likely to affect individuals who earn between £50,000 and £150,000, due to the tax bracket they fall into.

It is thought such changes could be announced by the Chancellor in the autumn Budget.

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Mr Sunak will be looking for ways to help the economy recover from the blow of the COVID-19 crisis, and indeed the high levels of spending enacted in the last few months.

And it is believed a number of proposals are being considered to raise money for the government.

These include a raising of taxes, scrapping the Triple Lock Mechanism for the state pension, and changes to Inheritance Tax.

The Budget is expected to lay out how Britain will be approaching the COVID-19 crisis going forward.

While it is hoped the economy will improve, Mr Sunak is likely to lay out how the Treasury will analyse and actualise recovery.

Although it is not yet clear what will happen with pension tax relief, understanding how this affects a person is key.

For those who are looking for more information regarding how their individual pension tax relief currently works, there are a number of options available.

Most usefully, is a pension tax relief calculator, which allows people to input their salary and pension contributions.

This will provide a more accurate picture of the pension tax relief to which an individual is entitled.

Such calculators are available online from a number of sources including Hargreaves Lansdown, Prudential and Which? magazine.

Express.co.uk has contacted the Treasury for comment on the matter.

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