The Budget - tax relief on pension contributions
Discussion
Not sure that's true. Quite a few of my colleagues are in their 30s - they might be on good incomes now but that's fairly recent and they haven't put away much in a pension since they graduated (student debts, saving for a house deposit, etc).
Even the 40-somethings like me will, in many cases, struggle to hit the LTA without some fairly chunky (i.e. >£10k pa) contributions over the next 10-20 years.
Personally, I'm struggling to see what Osborne is up to with this. I'm a natural Tory voter but I'm struggling to find sympathy with a policy that taxes high earners to pay for tax breaks for those set to inherit £1m.
Even the 40-somethings like me will, in many cases, struggle to hit the LTA without some fairly chunky (i.e. >£10k pa) contributions over the next 10-20 years.
Personally, I'm struggling to see what Osborne is up to with this. I'm a natural Tory voter but I'm struggling to find sympathy with a policy that taxes high earners to pay for tax breaks for those set to inherit £1m.
Every recent government has screwed around with pension contributions. They want people to save for retirement but yet make it difficult to do so. I really feel for 20-30 year olds as they will struggle to save for a decent pension with these limitations. Basically the Government wants the tax now rather than later - they still get it regardless - they are robbing future generations of the tax take as they cannot (in theory) tax you twice.
propaganda said:
Every recent government has screwed around with pension contributions. They want people to save for retirement but yet make it difficult to do so. I really feel for 20-30 year olds as they will struggle to save for a decent pension with these limitations. Basically the Government wants the tax now rather than later - they still get it regardless - they are robbing future generations of the tax take as they cannot (in theory) tax you twice.
The new proposed retirement ISA raises some interesting issues. Tax paid today, not tomorrow? If so, what about the drying up of tax revenue in 30 years? The strangling of public sector pay increases for a further four years has also, effectively, saved him a fortune in pension costs without messing about with pension contributions and/or allowances, whether they be final salary or career average.
Zigster said:
Not sure that's true. Quite a few of my colleagues are in their 30s - they might be on good incomes now but that's fairly recent and they haven't put away much in a pension since they graduated (student debts, saving for a house deposit, etc).
Even the 40-somethings like me will, in many cases, struggle to hit the LTA without some fairly chunky (i.e. >£10k pa) contributions over the next 10-20 years.
Personally, I'm struggling to see what Osborne is up to with this. I'm a natural Tory voter but I'm struggling to find sympathy with a policy that taxes high earners to pay for tax breaks for those set to inherit £1m.
Agree with some of this, all of this meddling for tax today with pensions is very short sighted. I too am naturally Tory but I do think they have got this one on pensions wrong. Not forgetting the complete hypocrisy of it all if you are an MP or Judge and have a final salary scheme which equates to a damn side more in equivalent contributions & LTA.Even the 40-somethings like me will, in many cases, struggle to hit the LTA without some fairly chunky (i.e. >£10k pa) contributions over the next 10-20 years.
Personally, I'm struggling to see what Osborne is up to with this. I'm a natural Tory voter but I'm struggling to find sympathy with a policy that taxes high earners to pay for tax breaks for those set to inherit £1m.
That said, I also think IHT is the most pernicious of taxes, taxing again from already taxed income. I have never inherited anything and will never inherit anything as my family are poor, and my kids will inherit very little as I intend to spend it all, but I still feel this way about IHT.
This is what the Government has done.
'Therefore, from April 2016 the government will introduce a taper to the Annual Allowance for those with adjusted annual incomes, including their own and employer’s pension contributions, over £150,000. For every £2 of adjusted income over £150,000, an individual’s Annual Allowance, the limit on the amount of tax relieved pension saving that can be made by an individual or their employer each year, will be reduced by £1, down to a minimum of £10,000.
‘Adjusted income’ includes taxable earnings and all pension contributions, but does not include charitable contributions.'
So essentially add employee and employer pension contributions onto earning to assess whether or not £150,000 is breached.
There is already a process to convert increases in defined benefit pensions to a notional contribution.
There is a tax charge if the Annual Allowance is exceeded.
Two things spring to mind.
Some higher earners in defined benefit schemes are going to be very unhappy.
Using the carry forward of unused Annual Allowance to make a sizable pension contribution (likely employer) could have a serious effect on the current years Annual Allowance.
I am assuming that the restricted Annual Allowance will only apply to the one tax year, and not have a lasting effect for subsequent years.
'Therefore, from April 2016 the government will introduce a taper to the Annual Allowance for those with adjusted annual incomes, including their own and employer’s pension contributions, over £150,000. For every £2 of adjusted income over £150,000, an individual’s Annual Allowance, the limit on the amount of tax relieved pension saving that can be made by an individual or their employer each year, will be reduced by £1, down to a minimum of £10,000.
‘Adjusted income’ includes taxable earnings and all pension contributions, but does not include charitable contributions.'
So essentially add employee and employer pension contributions onto earning to assess whether or not £150,000 is breached.
There is already a process to convert increases in defined benefit pensions to a notional contribution.
There is a tax charge if the Annual Allowance is exceeded.
Two things spring to mind.
Some higher earners in defined benefit schemes are going to be very unhappy.
Using the carry forward of unused Annual Allowance to make a sizable pension contribution (likely employer) could have a serious effect on the current years Annual Allowance.
I am assuming that the restricted Annual Allowance will only apply to the one tax year, and not have a lasting effect for subsequent years.
foliedouce said:
That said, I also think IHT is the most pernicious of taxes, taxing again from already taxed income. I have never inherited anything and will never inherit anything as my family are poor, and my kids will inherit very little as I intend to spend it all, but I still feel this way about IHT.
My particular issue with the IHT thing is that it will encourage the wrong behaviours.The proposals give the additional IHT allowance on the house which means that <stereotype> a little old lady is effectively encouraged to stay in the big family house rather than downsize to a bungalow. My mother is a perfect example of this - she won't move out of the house in which I grew up despite her not being able to maintain it properly and it costing a fortune to heat. It'll probably be fit only for demolishing in X years' time when she dies.
Which means that the big family house isn't freed up for a family who could make better use of it. House prices stay high making them less affordable for the next generation, who might get an inheritance but will need it to try and get a decent sized house.
People can already inherit £650k plus 60% of the rest - that's big sums of money and I think there are more deserving causes than the handful of people lucky enough to have parents who bought a house in London in the 1970s.
Perhaps that's one for NP&E rather than Finance ...
The writing appears to be on the wall for getting higher rate relief on pension contributions - it is going for buy to let landlords, and it will probably go with respect to pension contributions in due course. Don;t know when but I think I may be increasing my pension contributions in the next 2-3 years quite a lot - as the tax on dividends has just jumped from a marginal effective rate of 40% to 46% (according to my maths which might be wrong! though the 6% extra is the 7.5% rate x 80% post-corporation tax profit in a company, so appears rational) that will encourage lots of incorporated small businesses to make greatly increased pension contributions. Which GO will then see and want to put a stop to...
PurpleMoonlight said:
This is what the Government has done.
'Therefore, from April 2016 the government will introduce a taper to the Annual Allowance for those with adjusted annual incomes, including their own and employer’s pension contributions, over £150,000. For every £2 of adjusted income over £150,000, an individual’s Annual Allowance, the limit on the amount of tax relieved pension saving that can be made by an individual or their employer each year, will be reduced by £1, down to a minimum of £10,000.
‘Adjusted income’ includes taxable earnings and all pension contributions, but does not include charitable contributions.'
So essentially add employee and employer pension contributions onto earning to assess whether or not £150,000 is breached.
There is already a process to convert increases in defined benefit pensions to a notional contribution.
There is a tax charge if the Annual Allowance is exceeded.
Two things spring to mind.
Some higher earners in defined benefit schemes are going to be very unhappy.
Using the carry forward of unused Annual Allowance to make a sizable pension contribution (likely employer) could have a serious effect on the current years Annual Allowance.
I am assuming that the restricted Annual Allowance will only apply to the one tax year, and not have a lasting effect for subsequent years.
Apparently this only affects people whose actual earnings exceed £110,000.'Therefore, from April 2016 the government will introduce a taper to the Annual Allowance for those with adjusted annual incomes, including their own and employer’s pension contributions, over £150,000. For every £2 of adjusted income over £150,000, an individual’s Annual Allowance, the limit on the amount of tax relieved pension saving that can be made by an individual or their employer each year, will be reduced by £1, down to a minimum of £10,000.
‘Adjusted income’ includes taxable earnings and all pension contributions, but does not include charitable contributions.'
So essentially add employee and employer pension contributions onto earning to assess whether or not £150,000 is breached.
There is already a process to convert increases in defined benefit pensions to a notional contribution.
There is a tax charge if the Annual Allowance is exceeded.
Two things spring to mind.
Some higher earners in defined benefit schemes are going to be very unhappy.
Using the carry forward of unused Annual Allowance to make a sizable pension contribution (likely employer) could have a serious effect on the current years Annual Allowance.
I am assuming that the restricted Annual Allowance will only apply to the one tax year, and not have a lasting effect for subsequent years.
Zigster said:
My particular issue with the IHT thing is that it will encourage the wrong behaviours.
The proposals give the additional IHT allowance on the house which means that <stereotype> a little old lady is effectively encouraged to stay in the big family house rather than downsize to a bungalow. My mother is a perfect example of this - she won't move out of the house in which I grew up despite her not being able to maintain it properly and it costing a fortune to heat. It'll probably be fit only for demolishing in X years' time when she dies.
Which means that the big family house isn't freed up for a family who could make better use of it. House prices stay high making them less affordable for the next generation, who might get an inheritance but will need it to try and get a decent sized house.
No, there is a specific exemption for the proceeds of a house sale as well, so the little old lady is quite free to sell up, buy a smaller property and bank the proceeds, safe in the knowledge that the money is free from IHT. The proposals give the additional IHT allowance on the house which means that <stereotype> a little old lady is effectively encouraged to stay in the big family house rather than downsize to a bungalow. My mother is a perfect example of this - she won't move out of the house in which I grew up despite her not being able to maintain it properly and it costing a fortune to heat. It'll probably be fit only for demolishing in X years' time when she dies.
Which means that the big family house isn't freed up for a family who could make better use of it. House prices stay high making them less affordable for the next generation, who might get an inheritance but will need it to try and get a decent sized house.
I am just having a look at the budget document - the thing I wasn't sure about was "adjusted income". The footnote says "'Adjusted income' includes taxable earnings and all pension contributions, but does not include charitable contributions"
What I think that should mean is that adjusted income = individual taxable earnings before any pension contributions are deducted + employer pension contributions - charitable contributions
In other words there is no disregard for charitable contributions when calculating adjusted income for this purpose. Does that sound right?
I find it confusing / irritating when manufacturers of cars with the EV etc grants talk about including the government grant - it would be far easier to understand if they said before/ after deducting the grant. Including something that is deducted - does that mean it has not yet been deducted or it has already been deducted? Ambiguous (to me anyway)
What I think that should mean is that adjusted income = individual taxable earnings before any pension contributions are deducted + employer pension contributions - charitable contributions
In other words there is no disregard for charitable contributions when calculating adjusted income for this purpose. Does that sound right?
I find it confusing / irritating when manufacturers of cars with the EV etc grants talk about including the government grant - it would be far easier to understand if they said before/ after deducting the grant. Including something that is deducted - does that mean it has not yet been deducted or it has already been deducted? Ambiguous (to me anyway)
Ean218 said:
Zigster said:
My particular issue with the IHT thing is that it will encourage the wrong behaviours.
The proposals give the additional IHT allowance on the house which means that <stereotype> a little old lady is effectively encouraged to stay in the big family house rather than downsize to a bungalow. My mother is a perfect example of this - she won't move out of the house in which I grew up despite her not being able to maintain it properly and it costing a fortune to heat. It'll probably be fit only for demolishing in X years' time when she dies.
Which means that the big family house isn't freed up for a family who could make better use of it. House prices stay high making them less affordable for the next generation, who might get an inheritance but will need it to try and get a decent sized house.
No, there is a specific exemption for the proceeds of a house sale as well, so the little old lady is quite free to sell up, buy a smaller property and bank the proceeds, safe in the knowledge that the money is free from IHT. The proposals give the additional IHT allowance on the house which means that <stereotype> a little old lady is effectively encouraged to stay in the big family house rather than downsize to a bungalow. My mother is a perfect example of this - she won't move out of the house in which I grew up despite her not being able to maintain it properly and it costing a fortune to heat. It'll probably be fit only for demolishing in X years' time when she dies.
Which means that the big family house isn't freed up for a family who could make better use of it. House prices stay high making them less affordable for the next generation, who might get an inheritance but will need it to try and get a decent sized house.
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