Budget Pension Tax Changes
Rachel Reeves Could Make Some Painful Changes in the October 2024 Budget
Before every Budget rumours always fly around that pensions will have some of their generous tax treatment removed.
In recent years these rumours have proved completely unfounded. In fact pensions have become more and more attractive from a tax saving standpoint.
However, with a new Labour Government hungry for cash to spend and fill an apparent £20 billion hole in the public finances, pensions could be in the Chancellor's sights when she delivers her Budget on October 30th.
There are many pension tax changes that could be introduced in the Budget:
- Higher-Rate Tax Relief on Pension Contributions. If you are a higher-rate taxpayer you can currently enjoy 40% tax relief on your pension contributions, 45% if you are an additional-rate taxpayer. For years we've been told this attractive tax relief could be abolished and replaced with something far less generous, for example a flat rate of tax relief for everyone, perhaps 30%. Reducing or abolishing higher-rate tax relief would cost Labour a lot of votes, however, and we think scrapping higher-rate tax relief is unlikely in the October Budget.
- Inheritance Tax on Pensions. At present your pension savings fall outside your estate for inheritance tax purposes and many wealthier individuals have thought about leaving surplus pension savings to their children. Some "expert" left-wing think tanks have recommended levying IHT on pension savings on death. We think this is highly likely, if not in this Budget then a future one.
- Employers National Insurance on Pension Contributions. At present when your employer contributes to your pension there is no national insurance payable by them. By contrast employers pay 13.8% national insurance on all of your salary above £9,100. There are lots of rumours circulating that employers national insurance will become payable on pension contributions, perhaps at a rate lower than 13.8% to start. Of course we at Taxcafe think that any attack on struggling small business owners, who are already forced to make pension contributions for their employees, would be completely unwarranted. However, we think that such a change is very possible.
There are other pension tax changes that could be introduced in the Budget. The maximum amount of tax-free cash could be reduced from £268,275 to, say, £100,000. The annual allowance (the maximum amount you can invest each year) could be reduced from the current level of £60,000 or the much-hated and recently abolished lifetime allowance could be brought back. We simply do not know what will change and bad policy decisions can never be ruled out.
Whatever pension tax changes are announced in the October 2024 Budget, we at Taxcafe will give you the lowdown in our plain-English guide to pensions Pension Magic.
This unique guide tells you everything you need to know about maximising your tax savings when you put money in a pension and when you take it out.
The information contained in this article is covered in detail in our popular guide:Pension Magic by Nick Braun
