9 March 2016
Following the consultation on pension tax relief, which was announced on 8 July last year, speculation grew significantly over major changes to be announced in this Spring’s Budget which will be given next week on 16 March. The Chancellor had made suggestions that the full higher-rate tax relief you receive upfront on contributions would be removed and tax-free lump sums – the money you can currently withdraw at retirement, free of tax – may also come under threat with an overhaul of the current system to an ISA style approach. Alternatively, some pension experts predicted a new system altogether of flat rate tax relief for all earners, regardless of your income tax rate.
However, it seems, according to numerous sources including the Financial Times and the BBC, that George Osborne has decided in the last few days to drop plans to announce a cut in pension tax relief in the Budget because “now isn’t the right time”. It is suggested that this retreat stems from the backlash the Chancellor has received since proposing these changes and the want to avoid upset ahead of the Brexit referendum in June. Having already enacted fundamental changes to the pensions legislation, including auto-enrolment and the freedoms introduced in 2015.
Higher and additional rate taxpayers will welcome this news, given they would potentially have lost out on current tax relief on contributions and their lump-sum withdrawals or in the case of a flat-rate scheme would have had these reliefs reduced. Despite appreciating the value of a flat rate of tax relief, the pensions industry, myself included, also somewhat welcome this withdrawal of change as it will hopefully allow for some stability and for the dust settle on the most recent changes, allowing confidence to grow and benefits to be, one hopes, realised.
Nevertheless, it’s warned that this is a postponement and not a cancellation of change; therefore, we do have to wonder about the future, as once the EU referendum is out of the way this may be an item that makes it back onto the agenda. Those who were planning to make changes to take advantage of the current system before changes took place, may wish to still consider their medium-term action plans as a precautionary measure.
Follow us on Twitter @UHYHackerYoung now in order to pick up our commentary and our ‘at a glance’ summary of the key proposals following the announcement. We will also be issuing a more detailed summary the following day, which can be viewed on our website at www.uhy-uk.com/Budget-summary.