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Axe fears over tax relief for non-earners

Hargreaves Lansdown predicts the Government will axe rules allowing non-taxpayers to get tax relief on pension contributions in the next Budget.

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.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Tax Free Cash may also be at risk! Remember tax-free cash is no longer called tax-free cash. It has been renamed “Pension Commencement Lump Sum” (or PCLS), allegedly so that it will more properly reflect what it is: It’s a tax-free lump sum you get on pension commencement!!!

    What concerns me is the loss of the term “tax-free”. I can’t help but feel that the name change is a precursor to the taxation of the “Pension Commencement Lump Sum”.
    After all its easier to tax Pension Commencement Lump Sum than it is to apply a tax to Tax Free Cash!

    Its been done before! Remember Gordon Brown’s notorious “pension stealth tax” which reduced the value of retirement funds by between £100 billion to £150 billion?

    SIMON MANSELL
    TEMPLE BAR IFA LTD

  2. Richard Brown, Managing Director, Moneynotion Limi 11th February 2010 at 4:20 pm

    I agree with Simon: it’s probably the thin end on the wedge. But I’ll bet the lump sum on civil service pensions (and Judges) will remain tax free!

    Any move to stop relief for non-tax payers will further detract from the most vulnerable making contributions towards a pension which will make them less dependent on the State.

    When will the Government and the Revenue STOP fiddling with something it is clear from the last 60 years’ performance that they understand badly, if at all?

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