QUESTION: There is quite a lot of speculation about some of the tax changes which are likely to be announced in the July budget, particularly associated with possible changes to the tax relief available on pension payments. Should I be doing anything now to secure my current year pension tax relief before the changes are announced?
ANSWER: When there is a change of government it is normal practice to hold an emergency budget to put in place appropriate fiscal measures. Chancellor George Osborne is taking the unusual step of calling a summer budget on July 8 with a view to implementing some of the Conservative pledges from their election manifesto. The last time there was an emergency Budget was after the last election in 2010, but this will be the first fully Conservative budget since November 1996.
The good news is that increases to income tax, national insurance and VAT are unlikely to be announced. But it is widely believed it will announce a tightening of the pension’s tax regime as part of the Chancellor’s aim to reduce the UK’s economic deficit.
In the run up to the election the Conservatives pledged that tax relief on pension payments made by high earners would be reduced from the current annual allowance level of £40,000 down to just £10,000, for those earning over £210,000 a year.
It is anticipated that the pension annual allowance will be gradually reduced on a sliding scale once an individual’s earnings exceed £150,000. It is thought that it will be reduced by £2 for every £1 of income above this level, reducing to £10,000 once an individual’s income reaches £210,000.
If the proposed pension changes are announced, as expected on 8th July, it is still unclear whether the current ability for tax payers to carry forward annual allowances from previous years, in order to avail of tax relief on large ‘catch-up’ pension payments, will be affected by the anticipated announcements.
It is also unclear whether the new rules will have an impact on both employer and personal pension contributions.
It is thought that the pension changes will raise around £1 billion a year and will be used to finance the tax shortfall resulting from the anticipated rise in the inheritance tax (IHT) threshold on homes, to £1million, by 2017.
The Chancellor will surely push ahead with the IHT relaxation – it would, after all, be a ‘good news’ story.
: Janette Burns (j.burns@pkffpm. com) is associate director at PKF-FPM (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
