AJ Bell: Osborne could return to pension tax relief in emergency Budget

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George Osborne may use a Brexit vote as an excuse to push through controversial changes to pensions tax relief, AJ Bell is warning.

This morning the Chancellor said he would hold an emergency Budget if the UK votes to leave the EU.

He told the BBC a snap Budget would “have to increase taxes and cut spending” to fill a £30bn hole in the public finances.

He said he would need to raise the basic rate of income tax by 2p in the pound, higher rates by 3p and add 5p in the pound to the 40 per cent inheritance tax rate.

AJ Bell notes an increase in income tax would result in higher amount of pensions tax relief flowing out of the Treasury, prompting calls to revisit fundamental reform of the system.

Senior analyst Thomas Selby says: “A post Brexit vote emergency budget that increases income tax would immediately increase the cost of pension tax relief to the Government at a time when the Chancellor claims they would be making cuts in other public spending areas.

“The mounting Treasury bill for pension tax relief has been a concern of policymakers for some time. However, a combination of the EU referendum and the complexity associated with a fundamental overhaul saw the Chancellor put reform on ice at the last Budget.”

The Chancellor appeared set to announce plans to flip the pension system towards the Isa model at the last Budget. However, a backbench rebellion and the upcoming Brexit vote forced a last minute climbdown.