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Gov’t considers £40k annual allowance in raid on wealthy

by Alex Steger on Nov 20, 2012 at 07:51

Gov’t considers £40k annual allowance in raid on wealthy

Chancellor George Osborne is considering a raid on the pension contributions of the wealthy, which may include lowering the maximum annual tax-exempt pension contribution, the annual allowance, to £40,000, according to reports.

The Financial Times reported Osborne was considering options to propose in his Autumn statement, which he must send to the Office for Budget Responsibility by 28 November, and announce on 5 December.

The FT said Osborne (pictured) was looking to target the wealthy after David Cameron vetoed Liberal Democrat-backed plans for a mansion tax, a higher rate of council tax for luxury homes and apartments.

In 2010 Osborne reduced the annual allowance from £255,000 to £50,000.

A threshold of £40,000 is expected to raise around £600 million, while a further cut in the threshold to £30,000 would raise £1.8 billion, according to the FT.

The paper said another option under consideration was to increase stamp duty land tax on property sales.

Osborne is targeting £10 billion in benefit savings by 2015/16.

26 comments so far. Why not have your say?

is it me? via mobile

Nov 20, 2012 at 08:06

Pension crisis - what pension crisis!

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Anitaki

Nov 20, 2012 at 08:08

I'm waiting for the usual suspects to blame Gordon Brown for this too

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TheFuture

Nov 20, 2012 at 08:10

Have a look at Micheal Johnson of The CPS's papers and see what else might come.

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Dolores Chimichanga

Nov 20, 2012 at 08:10

If he is really trying to save cash also reduce the maximum final salary pension for all public sector pension schemes to £40,000. The lower paid get their full entitlement and the fat cats at the top like MPs make a real contribution to the cause.

Oh look a pig flying over the House of Commons!

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Jilly via mobile

Nov 20, 2012 at 08:16

@dc

Come on that will never happen but you are spot on my friend

Oinc oinc

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P L H

Nov 20, 2012 at 09:00

Rather than taxing the money on the way in and essentially just reducing the taxable annuity at the other end, wouldn't it make more sense to reduce the amount received as a pension commutation lump sum? Surely 20% rather than 25% would make some immediate difference to the coffers

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Jennifer Goldsmith

Nov 20, 2012 at 09:19

There is a big savings gap and the government should be encouraging people to save for their retirement. This would not help. Neither would increasing stamp duty on property sales as that would affect everyone not just the wealthy.

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Jonathan Kirby

Nov 20, 2012 at 09:21

@ PLH

It wouldn't make much difference as the extra 5% would only be used to produce a taxable income.

Surely, if they wanted to boost the economy, go the other way. Let people take more out as tax free cash as it will either go to reduce debt, be spent in the economy or go into other investments that are taxable.

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Chartered Mark

Nov 20, 2012 at 09:39

A helecopter view.

Why do they give tax relief on any pension contributions?

If it is to encourage people to save for retirement, so that they are not a burden on the tax payers when they retire, then why do they give the very wealthy tax advatages? Just guessing, but these people would almost certainly save for their future whatever the tax regime.

As an industry, some IFAs have got fat on clever tax planning using pensions. We "add value" and save tax and its all very clever, but why should the Country fund the tax planning of the very rich?

It seems logical to me that there should be some limit to the level of tax relief on pensions. I believe that it should be at a lower level than currently. If something is not done soon the whole Pensions deal will come under scrutiny. They will be looking at the Tax Free Cash. Its no coincidence that they call it Pension Commence Lump Sum now. It will make it easy to slap tax on in the future.

The reason that client apathy rules, is that we are asking a person to enter into a very long term arrangement, 40+ years in some cases, with absolutely no certainty of the rules that will apply to the plan during the majority of it's life and when it matures (just look at the changes over the last 15 years). People have seen the changes of the last 15 years and many now make alternative arrangements (BTLs etc) where they feel that they are more in control of their destiny.

AE will go some way to make Joe Public do something about pensions, but this will be costly and will never fully solve the problem.

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Andrew IFA

Nov 20, 2012 at 09:51

I thought that this lot were supposed to be a Conservative Government, why oh why can these people, and their overpaid mandarins, come up with some new ideas for a change.

How about this one if you live in the UK you pay taxation in the UK on your world wide income, no matter what tax haven it comes from.

An alternative would be to lower the rate of tax so that it is no longer worth avoiding, i know a number of people that pay a small fortune to accountants and lawyers to be in schemes to reduce tax, funny enough a lot of them only started to jump in to those scheme when the last greedy lot of politicians raised taxes.

Ohh thats not very PC is it.

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Keith Cobby

Nov 20, 2012 at 09:55

I certainly blame Gordon Brown for the terrible state of the economy. He was in charge as both Chancellor and PM during the 'decade of debt' running deficits in a time of economic growth.

I am still waiting for the public enquiry.

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Taxbreak

Nov 20, 2012 at 10:00

Tax breaks are the only thing which make pensions attractive. Without the tax breaks, who would wish to tie up money to buy an annuity when the annuity pays out no more than a high yield building society account but without the benefit of access to the capital sum?

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PensionMan

Nov 20, 2012 at 10:01

Instead of all of this pointless tinkering why not adopt a radical new approach.

Restrict the amount of tax relievable contributions to a % of salary (net relevant earnings) with a starting rate of, say, 17.5%, increasing with age;

Put a limit on the amount of salary that can be used to calculate maximum contributions. Lets call it the "earnings cap".

There - nice and easy!

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Mark Angus

Nov 20, 2012 at 10:04

Keith, The decade of debt was a global malfunction...was that Broon's fault?

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Still Deciding

Nov 20, 2012 at 10:05

chartered mark, completely agree with you. Anyone with a modicum of understanding of pensions can't help but notice the huge savings that wealthy individuals can make. I'd be inclined to cap tax relief at the 20%. It's still very generous, but I can't see why we're giving tax relief up to 40 and 50%.

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Simon Kershaw

Nov 20, 2012 at 10:31

@Anitaki

Have you become Browns PR?

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Anitaki

Nov 20, 2012 at 10:42

@ Simon

No, but l always refused to read the Daily Mail, so l've always been able to think for myself after weighing up the facts of any matter.

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David Dunlop

Nov 20, 2012 at 10:55

If this is the road the government want to go down why not just scrap pensions all together? The tax relief is the only incentive for people to save in a plan which is shafted by every government. At the same time they stress the importance of saving to provide for oneself upon reaching retirement. Either you want people to save or you don't make up your feckin mind!

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Pat Riot

Nov 20, 2012 at 11:05

David,

Like all politicians they want to have their cake and eat it, Persoanlly I think the Chancellor is a closet revolutionary trying to provike a violent uprising of the middle classes.

Anyway what's wrong with another couple of bands on the top end of Council tax to extract more money from the rich who pay millions for houses in both Central London and the Shires, if they can afford houses like that , they can afford to pay some more tax- overseas buys will not be deterred as they see the UK as politically stable bolt hole against the day when their own starving masses think they'd make attractive lamp post decoration.

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Keith Cobby

Nov 20, 2012 at 11:43

Mark, I find it saves time to blame Gordon for our economic ills. Many countries are in a similar state to our own, but not all (eg. Australia, Norway).

Clearly he must himself know that he is responsible. If he thought he had left a good economic record he would be continually popping up to tell us.

Unless you are able to receive higher rate tax relief or are in a good company scheme, pensions seem to be no longer worth it. As others have said, how can you plan when the rules are constantly changing.

I would like to see the ISA replace the pension.

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David Botterill-Scott

Nov 20, 2012 at 12:14

I really don't know why they spend so much much time and effort mugging the easy targets when they're already down when they know perfectly well that they could get billions very quickly if they just made big business pay the tax they owe.

They might even make friends of the electorate instead of alienating them!

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Philip Wise

Nov 20, 2012 at 12:22

This would get a load of tax from longserving, highly paid public servants, like GPs etc. Also a load of extra money in fees to IFAs and accountants working out how much tax they have to pay on their final salary pensions.

Most other people would just pay less into their pension.

If you want to get some tax revenue from pensions, why not increase the amount of tax you collect on pension funds. At the moment, tax is only collected on dividends received by pensions and that is unfair, surely. So, collect tax on interest and rent too. Pension funds are a sitting duck, they arent very popular , and by the time people have worked out what happened, Osbourne et al will be on a yacht with their Eton mates anyway.

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John Smyth 3

Nov 20, 2012 at 12:30

They could put a turnover tax on the multinational pee takers and change the law to stop the likes of Phillip and Tina Green taking the pee out of us and HMRC.

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Greg M

Nov 20, 2012 at 12:58

@Jennifer Goldsmith - I don't think anyone who can contribute nearly twice median earnings to pension in a year is part of "the savings gap"!!! In my experiance no one paying that sort of contribution is "saving for retirement", but "tax planning".

Oh, and how would extra stamp duty on expensive houses over a £ million bother the average buyer at £180,000?

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Charles Rickards

Nov 21, 2012 at 10:16

Why not start taxing pension members that are over the lifetime allowance from the point they go over the lifetime allowance. This could be calculated relatively easily for DC or DB schemes and the tax could be taken from the fund or member. Limiting the Annual allowance whilst easy may prevent those late starters who are able from being able to build up a reasonable level of taxable retirement income. Changing the pension commencement lump sum to a taxable amount would be a further deterent to using pensions in the first place, however, a limited taxation may be palatable?

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Xiang Xhi

Nov 22, 2012 at 12:08

Do they not realise that cutting the annual allowance on the way in, reduces the tax take on the way out? It will have no impact, reducing the LTA by £10,000 just means that more grandchildren and children will be having their pension pots boosted, more MIP's being taken out, more ISA's been max'd, etc.

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