Head of pensions research Tom McPhail believes the concession is being used as a loophole for those affected by last year’s Budget changes to restrict tax relief for higher-earners.
HM Revenue & Customs’ most recent figures for the tax year to April 2007 show the total pension contribution from non- earners was £313.9m. This means the Treasury paid out almost £62.8m in tax relief.
He says: “Even if you have no income you can put up to £3,600 a year into a pension and receive tax relief. It means the kind of person who will get caught by the restriction to higher-rate relief can make pension contributions in their spouse’s name and for any children. They will only get basic-rate relief but I suspect these people are probably not the type the Treasury feels it needs to spend its money on.
“My bet, come the Budget, buried somewhere in the small print, is that they will close this loophole. Given the Treasury is having to rummage behind the sofa for spare change, it would be prudent for anyone who is in a position to make a contribution for a non-earner in their family to get on with it.”
Hargreaves is writing to urge the Government to abandon plans to introduce an age-related factor in calculating tax payable for final-salary scheme members. As revealed in Money Marketing, the move is expected to see tax bills soar for many.