Budget: Govt extends pension tax relief cut


The Government has expanded its expected reduction to pensions tax relief for people earning less than £150,000.

Originally the Government had indicated people earning over £150,000 would see their annual allowance tapered to a minimum of £10,000. This is to fund an increased inheritance tax threshold to £1m for couples. It was not clear how the Treasury would define earnings.

But the Budget document, published today, reveals employer and employee pension contributions will be included in the £150,000 “adjusted income” threshold.

The Budget document says: “From April 2016 the Government will introduce a taper to the annual allowance for those with adjusted annual incomes, including their own and employer’s pension contributions, over £150,000”.

But people with income excluding pension contributions below £110,000 will not be affected.

The Government confirms for every £2 of adjusted income over £150,000, the annual allowance will fall by £1 down to a minimum of £10,000 for those earning over £210,000.

But the Government says only 1 per cent of taxpayers exceed the threshold and save into pensions.

It says: “Even fewer will actually be affected by this measure.”

Retirement Advantage pensions technical director Andrew Tully says: “This extends the measure to many more people than originally envisaged. It will also be difficult for people to plan as they won’t necessarily know their earnings until after the end of the tax year, so won’t know the annual allowance which applies.”