Pension tax relief cuts for high earners
In their manifesto, the Conservatives included plans to limit pension tax relief for anyone earning more than £150,000.
If the plans go ahead, the amount a high earner can contribute to a pension and receive tax relief on will be cut, meaning some high earners will be able to contribute no more than £5,500 per year into a pension – effectively excluding them from the pensions system and forcing them to save in other ways.
At present, a £40,000 annual allowance applies to pension contributions. To maximise contributions now, high earners can also potentially carry forward any unused allowance from up to the last three tax years.
It is proposed the £40,000 annual allowance will fall by £1 for every £2 an investor earns over £150,000. Anyone earning over £210,000 will have a £10,000 annual allowance. There has been no indication as to how the changes will impact carry forward or if it will remain available.
High earners might wish to consider bringing forward any planned contributions. When similar changes have been announced in the past, they have taken immediate effect. However we do not know for sure if these changes will be announced on 8 July or when they will take effect.
Before making a contribution, remember money in a pension can normally only be accessed from age 55 (57 from 2028) and taxed as income. Tax rules can change and the amount will depend on individual circumstances.
You can read more on this in today’s The Telegraph article here
Image courtesy of The Telegraph