Get pension contributions in before 40% relief is axed
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Advisers should be urging higher-rate taxpaying clients to rush through pension contributions as a Liberal Democrat coalition or pact with either of the main parties is likely to see 40 per cent tax relief scrapped, according to pension experts.
The LibDems have been calling for tax relief on pension contributions to be brought down to the basic rate of 20 per cent for all taxpayers, irrespective of income tax band.
People earning between £43,875 and £149,999 fall into the higher-rate tax bracket for 2010/11. Around 3.13 million people would be affected by the move, which the LibDems say could raise £5.5bn.
Standard Life says pension tax relief is at risk, whatever the election result. The firm expects an emergency Budget within the next six weeks.
Head of pensions policy John Lawson says: “With a Budget expected in the next six weeks, advisers should be telling all their higher-rate taxpaying clients there is a significant risk that higher rate tax relief will be withdrawn.
“Rather than paying their contribution at the tax year-end, they should pay it now while they can still get higher-rate relief because whatever coalition comes about there is a huge risk. Labour were the ones who star-ted cutting tax relief so they in particular might be minded to go the whole way.”
Hargreaves Lansdown pensions analysts Laith Khalaf says: “Whichever party the Liberal Democrats elect as our new government is likely to be seduced by the £5.5bn annual savings they could make from cutting higher-rate tax relief. Advisers should be talking to clients about making this year’s contribution before the emergency Budget.”
Informed Choice chief executive Nick Bamford says: “If clients are intending to make contributions this tax year anyway it would be sensible to bring that forward just in case.”
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