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Govt could lower pension tax relief limit, says MacIntyre Hudson

The Chancellor Alastair Darling will reduce the maximum pension contribution eligible for tax relief from £225,000 to £100,000, according to predictions from chartered accountants MacIntyre Hudson.

The firm says Darling may see the potential for higher earners to abuse the system and in turn limit the relief.

Tax principal Patrick King says: “Reducing the annual limit on pension contributions would raise tax from high earners currently using their maximum entitlements. The Chancellor can argue that nobody making contributions at that level is likely to end up on state benefits in retirement, and so a lower limit would protect the state’s interests while minimising opposition, at least from traditional labour voters.”

MacIntyre Hudson also believes Darling will raise the rate of National Insurance Contributions above the Upper Earnings Limit from 1 per cent to 2 per cent.

It says he may also introduce higher supplementary rates for top earners such as a 3 per cent charge on earnings above £100,000.

MacIntyre Hudson tax principal Nigel May says: “The chief attraction of this move is that it would only affect higher earners – those earning more than £670 a week – so would not ruffle the feathers of core Labour voters. Any move is likely to be deferred for a year, demonstrating the Chancellor has a strategy to tackle the budget deficit without further depressing the economy at this critical stage.”

May also adds that Darling’s proposals on tax changes for non-domiciles is an act of “economic folly”.

He says: “The government has recently clarified that the tax treatment of offshore trusts would not apply retrospectively to gains already accrued before the changes are introduced. Yet this will cause the administrative nightmare of a valuation of all assets at 5 April 2008.

“The Chancellor probably now realises that his hasty non-dom policy is a disaster in the making which will cost revenue rather than raise it but, fearing that this would be one climb down too many, is likely to plough on regardless.”

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