Budget: Treasury plans ‘radical’ pensions tax overhaul

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The foundations of pensions tax system could be swept away under “radical” proposals announced by George Osborne in today’s Budget.

The Chancellor announced a green paper that will look at moving the taxation of pensions closer to the Isa regime, where tax is paid on contributions, not on withdrawals.

He said: “It’s time to look at the other end of the age scale, to those starting to save for a pension. The truth is Britain isn’t saving enough and that’s something we need to fix in the economy too.

He added: “I am open to further radical change – pensions could be treated like Isas. You pay in from taxed income and its tax free when you take it out and in between it receives a top up from the Government.

“This idea and others like it need careful and public consideration before we take any steps – I am from today launching a green paper that asks questions, invites views and takes care not to prejudge the answer.

“Our goal is clear. We want to move from a economy built from debt to an economy built ont he more secure and productive foundations of saving and long-term investment.”

The Government had already confirmed the annual allowance for pension contributions will be tapered for those earning over £150,000 to fund raising the inheritance tax threshold.

From April 2017 the individual IHT threshold will be raised from £325,000 to £500,000 when property is included, giving a married couple a shared £1m threshold.

Reduced allowances will be offered for properties worth more than £2m, with those worth upwards of £2.35m seeing no change.

The move is funded by a tapering of tax relief on pensions contributions for those earning more than £150,000, with those earning £210,000 able to contribute just £10,000 to their pension on a tax-free basis.