High Rate Tax Payers and Pensions

High Rate Tax Payers and Pensions

If you recall our previous blog which stated that if you are a high rate tax payer you should consider making the maximum pension contribution prior to the budget on the 8th July.

In the budget the chancellor however merely restricted annual allowances for Additional Rate Tax Payers, this will be done on a tiered basis for earnings between £150,000 and £210,000, so for client earning the topside of that could see their annual allowance reduced to only £10,000 (rather than the normal annual allowance of £40,000).

The Chancellor also launched a consultation process (a new Green Paper on Pensions) about reforming tax incentives for pensions, including the possibility of scrapping all tax relief on pensions.

Considering that tax relief on pensions cost a staggering £50Bn in 2013-14 and that more than two thirds of this tax relief went to higher rate and additional rate tax payers. Then it is clear pension tax relief system is manifestly geared in favour of the rich.

So much for the “One Nation” alluded to by Mr Osborne!

The proposal for a new Pensions Green Paper also made it clear that “ the current system of pensions does not sufficiently help to foster engagement and understanding of pensions”

Given that we have a reforming Chancellor who is prepared to consider all strategic options, particularly when it means more cash for the government. If you have in the past made use of large pensions contributions and you are a high rate tax payer. Then we can only repeat our previous advice – for all high rate tax payers – consider making the maximum possible pension contribution to your pension prior to April 5th 2016. Quite simply you would be bonkers not to do so!

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A pension is a long-term investment that typically cannot be accessed until age 55 (57 from April 2028). The level of pension benefits offered could change depending on the value of your investments (and any income they may generate).

The interest rates in effect at the time you begin receiving benefits may also have an impact on your pension income. The tax consequences of pension withdrawals will depend on your unique situation. In later Finance Acts, tax rates, tax bases, and tax relief may change.

The opinions expressed by Ray Best are meant to inform and educate. Before making any investment decisions always take advice that is pertinent to your investment personality and financial situation.

You are aware that past performance will not necessarily be repeated in the future, but you should be aware that persistent poor performance invariably will.

The value of an investment and the income from it could go down as well as up.

The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

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The guidance in this website is primarily aimed at a UK audience and is subject to regulation by the Financial Conduct Authority (FCA).

The Financial Conduct Authority does not regulate tax planning, estate planning, or wills and any form of legal documentation.