Joint managing director Martin Bamford says the move will make contributing into a pension less attractive for people earning more than £150,000.
He says: “This will mean investing in non-pension vehicles and could result in retirement planning becoming more holistic. Sources of potential income in retirement could include cash, property and business assets.”
Bamford says people earning between £100,000 and £150,000 should make pension contributions to help preserve personal allowances from next tax year.
Hargreaves Lansdown pensions analyst Laith Khalaf says that while the changes currently only apply to a limited number of people, the Budget’s growth assumptions are very generous and if the economy does not hit the mark, higher-rate relief may be cut further.
“Next year we could be looking back at this and thinking it was the thin edge of the wedge.”
Khalaf says people earning more than £150,000 should use the £20,000 allowance to get higher-rate relief now and consider other tax-relievable investments like VCTs and enterprise investment schemes, after Isas. He says people earning between £100,000 and £112,950 should use salary sacrifice to avoid a 60 per cent income tax due to the staggered withdrawal of the personal allowance at this level.
But in the Budget notes, HMRC warns against advisers trying to find “clever ways” to reduce their clients’ income below the £150,000 threshold.
It says: “You may end up with tax relief restricted to basic rate on some or all of your normal ongoing contributions, which would otherwise have been relieved at higher rates of tax.”
HMRC says it will look closely at tax avoidance measures and pursue them vigorously.