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£150K earners on ‘a cliff edge’

People who earn £150,000 or more will be hit with a “catastrophic” drop in pension tax relief in the next two years.

Hargreaves Lansdown says that transitional rules between now and 2011 will lead to a massive discrepancy between higher-rate taxpayers earning under £149,999 and those earning £150,000 or more.

Under the interim rules, those earning £150,000 or more will only get 40 per cent tax relief on £20,000 while those earning less will get 40 per cent tax relief on the entire contribution.

Those earning £149,999 who put £100,000 into their pension will get 40 per cent tax relief. But those earning £150,000 and putting £100,000 into a pension would only get 40 per cent tax relief on £20,000 and 20 per cent relief on the rest of the contribution, losing out on £18,000.

Hargreaves Lansdown pensions analyst Laith Khalaf says: “There is a massive cliff edge once you reach £150,000. I would think that anyone who is in this position will be thinking about leaving their pension scheme. It means that there is a catastrophic drop-off in pension savings investing potential for people in this band.”

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