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‘Meagre’ move on forestall tax limit

The Government is to increase the maximum annual contribution allowed under its pension tax relief anti-forestalling measures from £20,000 to £30,000 per year.

Under the amendment tabled last week, the Government states that the smaller of either the average of an individual’s last three years’ contributions, or £30,000, will be allowed. In the original legislation, people who did not have regular quarterly or monthly pensions contributions would only be able to get full tax relief on the first £20,000 of contributions.

Treasury Financial Secretary Stephen Timms says that the amendment will ensure many more people contributing annually will continue to benefit from higher-rate tax relief on their full contribution.

But Standard Life head of pensions policy John Lawson labels the concession as “mean”. He says: “The Government has made only the meagrest of concessions to the self-employed and small business owners most affected by these proposals.Those in company schemes who pay pension contributions monthly are treated more favourably because they can protect their full historic contribution level without limit. There is no justification for penalising entrepreneurs in this way. It is a real con.”

Syndaxi Chartered Financial Planning managing director Robert Reid says: “This is a disingenuous change which does not do the Government any credit at all. People will assume there is now a £30,000 cap but if someone has not been contributing much over the past few years, they are going to get caught out.”

The anti-forestalling measures were introduced in the Budget to prevent a buy-now-while-stocks-last abuse of the tax relief system ahead of the proposed reduction in pension tax relief for people earning over £150,000, set to come into effect in 2011.

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