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L&G offers pension tax alternative

Scrapping Budget proposals on higher-rate pension tax relief in favour of limiting the annual contribution allowance to £50,000 would generate the same amount of revenue, says Legal & General.

The firm, in conjunction with the Tax Incentivised Savings Association, says that a £50,000 annual allowance, instead of the current £225,000, would generate around £3.1bn annually for the Treasury – the same as that expected from Chancellor Alistair Darling’s Budget proposals.

Contributions above the £50,000 limit would receive basic-rate tax relief.

Wealth policy director Adrian Boulding says: “This way, full tax relief is retained, as are the sacred principles of pensions which say contributions are not taxed on the way in but on the way out. That is what encourages people to defer income today and take it tomorrow. But the Budget proposals introduce double taxation for anyone earning more than £150,000 a year.

“I understand the fiscal need to restrain the amount of pensions tax relief high-earners get, but a reduced annual allowance is a much better way to do it.”

The alternative proposal has been submitted to the Treasury and HM Revenue & Customs.

The House of Lords economic affairs committee has said that the Government is wrong to introduce anti-forestalling measures to limit pension contributions in the Budget and calls for the special annual allowance to be significantly increased from £20,000 if alternative solutions to the issue of those making irregular contributions cannot be found.

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Neil Jones is technical support manager with Canada Life’s ican Technical Services Team. Canada Life offers a range of wealth management solutions, including retirement income planning, estate planning and investment solutions from a choice of jurisdictions, including the UK, Isle of Man and Republic of Ireland. The residential nil-rate band (RNRB) was first announced in […]

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  1. Whilst I still don’t like it…………
    ..this sounds a sensible compromise as it could easily be reversed at a later date. It is also much easier to work with for client/adviser and probably HMRC too.Let’s hope this is a compromise which allows AD to take action without loosing too much face.
    I’d also rather see it at £100k or a similar figure as that would allow clients who were looking to commercial property SIPP purchase immanently to still proceed wheras 50k may just put the kybosh on things.

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