Pension tax relief fears as Rishi Sunak ‘plans tax raid’ to save government £4billion
We will use your email address only for sending you newsletters. Please see our Privacy Notice for details of your data protection rights.
Rishi Sunak is set to deliver his Spending Review on Wednesday, with his Autumn Budget having been cancelled last month. As Britons await the Chancellor’s plans to cover the costs that have come with the coronavirus pandemic, many have been wondering whether tax changes could be ahead.
This week, it has emerged that Mr Sunak is said to be drawing up plans to cut to pensions tax relief for higher earners.
The Chancellor is reportedly “very attracted” to the idea of switching to a flat rate relief system on pensions of 25 percent.
“It’s a matter of fairness for him,” a government source said, reports The Times.
While decisions on tax rises won’t come on Wednesday but the Budget next year instead, it’s expected Mr Sunak could signal tax rises during the upcoming Spending Review.
However, Treasury sources have reportedly suggested decisions on tax rises could be put off until later in the year, if the economy went back in to recession.
Higher earners currently get 40 percent tax relief on pension contributions.
However, chances could mean they face a significant reduction to the rate.
Meanwhile, the system would become more generous to basic rate taxpayers – who currently get 20 percent tax relief.
The think tank The Resolution Foundation has said that the move would save the government £4billion a year, it’s reported.
Adam Corlett, the foundation’s principal economist, said: “With the crisis set to leave a lasting mark on the public finances, the chancellor will need to substantially raise tax revenue once the economy has recovered.
“Long-overdue reform of pension tax relief makes sense given the potential savings involved, and the fact that it overwhelmingly benefits higher-income workers. This should include reform of the tax-free lump sum.
“Moving to a flat rate relief of 25 percent could raise several billion a year, while giving a boost to pension pots for the majority of workers. But the chancellor shouldn’t underestimate the complexity of delivering such a reform.”
Julia Rosenbloom, tax partner at Smith & Williamson, has previously spoken about potential changes she thought Mr Sunak may consider.
Speaking exclusively to Express.co.uk, she said: “As we begin preparing ourselves for The Budget next year, we are expecting to see some aspects of an IHT reform document published earlier this year come into effect.
“In particular, we anticipate the potential abolition of Potentially Exempt Transfers (PET), essentially the ability to make a gift of unlimited value that is exempt from Inheritance Tax (IHT) if you live for another seven years.
“Coupled with a probable increase in the rate of Capital Gains Tax, this would represent a significant restriction on people passing on their wealth, making it much more expensive to gift to their children or grandchildren.”
Pension tax relief is also something which Ms Rosenbloom identified could be set to change.
“We are also likely to see some changes to the current pension relief in The Budget next year,” she said.
“This could mean the limiting of tax relief or creating a tax relief hybrid, resulting in us all receiving the same relief of 30 percent, for example.
“Pensions are already very confusing, and making more changes will mean people understand it even less.
“We need a set of reliable and consistent pension rules to ensure people feel confident in saving for the future.
“The real danger is that these cuts will lead to a drop in the amount that people contribute to their pension pot.”
Source: Read Full Article