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Income tax and NI merger could end higher-rate relief

Government plans to merge income tax and National Insurance could eventually see higher-rate tax relief on pension contributions scrapped, according to Skandia.

In his Budget, Chancellor George Osborne confirmed the Government will consult on combining the income tax and NI tax regimes.

He said the complexity of the change means it will take years to fully implement.

Skandia says if the two taxes are consolidated into income tax rates then a basic-rate tax payer could be elig- ible for increased pension tax relief of 32 per cent rather than the current 20 per cent.

To fund this, Skandia says the Tories could limit tax relief on all pension contributions to 32 per cent. Higher-rate taxpayers currently benefit from tax relief of up to 50 per cent on contributions.

Skandia head of retirement planning Adrian Walker says: “The removal of higher-rate tax relief on pension contributions has been rumoured for as long time and a merger of income tax and NI might prove to be the tipping point.

“This would be a poor outcome for investors who need as much incentive as possible to save for their retirement and I am sure the industry will be campaigning on their behalf during the consult-ation period.”

AWD Chase de Vere head of communications Patrick Connolly says higher-rate tax relief on pensions will “inevitably” disappear.

He says: “We support merging income tax and National Insurance if it can be done effectively because it will help simplify the tax system.

“For years, we have been saying higher-rate relief on pensions contributions is going to disappear at some point but it is hard to say whether this will be the catalyst that finally makes it happen.”

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