There has been a wide-ranging consultation over the last year or so concerning pension tax relief between the financial services industry and HMRC. This is now closed and the Treasury will report on this within the Budget on 16th March 2016.
Rumour and counter rumour have been leaking in the media as to what will be the Chancellor’s intentions. One thing is pretty certain, he will do something. But what? There is the idea that pension tax relief will mirror that for ISAs i.e. no tax relief on premiums but fully tax relievable on exit. However, a more likely scenario is that higher rate tax relief will be abolished with the introduction of a flat rate somewhere between 25-33.33%. If the higher figure, it could be presented as a top-up of £1 for every £2 invested as a £100 net premium would be topped up to £150 with the addition of 33.33% tax relief (this might appear counter-intuitive but a gross contribution of £150 with 33.33% tax relief costs £100 net!).Another idea is a possible further reduction in the pension contribution Annual Allowance.
Whatever transpires, it will be prudent for higher rate tax payers to make the most of the opportunity between now and Budget day to increment their pension pots – it’s not likely to get any better than it is now.