Pension tax relief cut for high earners
Discussion
What is the likelihood of this being implemented in the budget?
http://www.pensioncalculator.org/17043/news/pensio...
Chief Secretary to the Treasury Danny Alexander has made some headline-worthy news with his latest statements on pension taxes. Mr. Alexander has proposed halving the higher-rate tax relief on pensions from 40 to 20 percent in an effort to make pensions fairer for low-income savers.
This is because, says Mr. Alexander, the current system of tax-relief is overly generous, costly for the Treasury, and mostly benefits the wealthiest workers in the country.
Sparking controversy
The remarks will likely be inflammatory as the Tories and Liberal Democrats are already in disagreement concerning tax policies in the UK. Lib Dems ruffled coalition feathers when they refused to repeal the top 50% rate of tax for high earners. Further tension was added when they introduced a “mansion tax” on homes of extremely high value.
Still, Mr. Alexander says that his proposals are in keeping with the coalition government’s tenants of reduced spending and deficit cuts. He said that the UK already spends a “very significant” amount of money on pensions tax relief, and even halving tax relief only for those who make over £100,000 could save £3.6 billion.
Despite these figures, Chancellor George Osborne is expected to put up a strong fight against the efforts to scrap higher-rate tax relief.
However, the Chief Secretary says that he is a “tax-cutter by instinct” for those on low and middle incomes, and that furthering these tax cuts will necessarily result in wealthier citizens paying more. The motion to cut tax relief for higher-rate savers will likely come about during the Liberal Democrat spring conference, set to take place in the spring.
While Mr. Alexander says that he will “study” the motion first, he has expressed clearly that he is in support of the measure for “reasons of fairness.”
Savings deterrent?
The most vocal critics of the Lib Dems’ plans say that reducing tax relief will drastically reduce the incentive for people to save.
The pensions system, which many feel is already in danger with enrolment down to historic lows, could suffer a crippling blow. Only a third of Britons are saving into a pension at all, despite the range of options from Virgin Money and other providers.
But the Lib Dems say that it is not fair for higher-rate taxpayers get 40p in tax relief for every 60p they put in. This means 60p automatically gets topped up to £1, while basic rate taxpayers have to put in 80p to get £1.
While Danny Alexander has made it clear that he wants to cut the higher-rate relief down to 20%, he has said that needs to hold private discussions on another matter of savings and tax. This concerns the tax-free allowance being increased by over £2,000 to £10,000 a year.
http://www.pensioncalculator.org/17043/news/pensio...
Chief Secretary to the Treasury Danny Alexander has made some headline-worthy news with his latest statements on pension taxes. Mr. Alexander has proposed halving the higher-rate tax relief on pensions from 40 to 20 percent in an effort to make pensions fairer for low-income savers.
This is because, says Mr. Alexander, the current system of tax-relief is overly generous, costly for the Treasury, and mostly benefits the wealthiest workers in the country.
Sparking controversy
The remarks will likely be inflammatory as the Tories and Liberal Democrats are already in disagreement concerning tax policies in the UK. Lib Dems ruffled coalition feathers when they refused to repeal the top 50% rate of tax for high earners. Further tension was added when they introduced a “mansion tax” on homes of extremely high value.
Still, Mr. Alexander says that his proposals are in keeping with the coalition government’s tenants of reduced spending and deficit cuts. He said that the UK already spends a “very significant” amount of money on pensions tax relief, and even halving tax relief only for those who make over £100,000 could save £3.6 billion.
Despite these figures, Chancellor George Osborne is expected to put up a strong fight against the efforts to scrap higher-rate tax relief.
However, the Chief Secretary says that he is a “tax-cutter by instinct” for those on low and middle incomes, and that furthering these tax cuts will necessarily result in wealthier citizens paying more. The motion to cut tax relief for higher-rate savers will likely come about during the Liberal Democrat spring conference, set to take place in the spring.
While Mr. Alexander says that he will “study” the motion first, he has expressed clearly that he is in support of the measure for “reasons of fairness.”
Savings deterrent?
The most vocal critics of the Lib Dems’ plans say that reducing tax relief will drastically reduce the incentive for people to save.
The pensions system, which many feel is already in danger with enrolment down to historic lows, could suffer a crippling blow. Only a third of Britons are saving into a pension at all, despite the range of options from Virgin Money and other providers.
But the Lib Dems say that it is not fair for higher-rate taxpayers get 40p in tax relief for every 60p they put in. This means 60p automatically gets topped up to £1, while basic rate taxpayers have to put in 80p to get £1.
While Danny Alexander has made it clear that he wants to cut the higher-rate relief down to 20%, he has said that needs to hold private discussions on another matter of savings and tax. This concerns the tax-free allowance being increased by over £2,000 to £10,000 a year.
sinizter said:
How the f
k is it not fair ?
If they want everything to be 'fair' why doesn't everyone pay the same level of tax ?
Because society today doesnt bother about how much an individual makes...everyone is bothered about how much some one else makes. And flat tax on 150k is not fair apparently.k is it not fair ?If they want everything to be 'fair' why doesn't everyone pay the same level of tax ?
It wont happen soon because there's no immediate need - either financially or with regards "public demand"
It WILL happen at some point because there is a long term issue where HRT relief is too costly and various groups (sensible groups) have been saying so for 10+ years.
It wont do much for regular pension savers though because if you are a HRT payer and only get 20% relief you can be sure you'll be well into BRT PAYMENTS on the pension when you retire!
It WILL happen at some point because there is a long term issue where HRT relief is too costly and various groups (sensible groups) have been saying so for 10+ years.
It wont do much for regular pension savers though because if you are a HRT payer and only get 20% relief you can be sure you'll be well into BRT PAYMENTS on the pension when you retire!
Let me get this straight so I understand the numbers and calculations as a HRT payer.
If I pay £10k into my personal pension then I won't get a HRT rebate from the tax man, but the £10k will be grossed up into the pension.
If my company pays £10k into my pension (ie. non-contributory) will I have to pay £2k extra tax per year?
If I top up my pension with another £10k through salary sacrifice will I be taxed another £2k?
If I pay £10k into my personal pension then I won't get a HRT rebate from the tax man, but the £10k will be grossed up into the pension.
If my company pays £10k into my pension (ie. non-contributory) will I have to pay £2k extra tax per year?
If I top up my pension with another £10k through salary sacrifice will I be taxed another £2k?
sinizter said:
BRT payments ?
Basic rate tax......a VAST number of basic rate tax payers (who get BRT relief while working) will have the majority of their tiny income in retirement covered by their personal allowance....so the tax relief has real value. A HRT payer is far more likely to have a decent income beyond the allowance and so pay 20% income tax as a pensioner. So he gets 20% relief while working (if they drop the relief down) and pays 20% back when he retires. (this doesnt allow for the tax free cash element, etc, etc but it makes a pension far less attractive if a big chunk of what you get given is taken back. There are only 2 benifits to a pension over an alternative - tax relief and financial discipline (and the latter is more a benefit to the government who dont want people blowing their cash on holidays and TV's before they retire and then need funding by the state till age 95!)Take away the benefit to the individual and they are dead in the water.
LeoSayer said:
Let me get this straight so I understand the numbers and calculations as a HRT payer.
If I pay £10k into my personal pension then I won't get a HRT rebate from the tax man, but the £10k will be grossed up into the pension.
If my company pays £10k into my pension (ie. non-contributory) will I have to pay £2k extra tax per year?
If I top up my pension with another £10k through salary sacrifice will I be taxed another £2k?
If you pay in £10k, this is the net figure. This is grossed up by the basic rate of tax (20%), so that £12,500 goes into your pension fund. The remaining tax relief is obtained by an extension of your basic rate band (claimed on your tax return) so that more of your income is only charged at 20% rather than 40% and thus you are given all the relief.If I pay £10k into my personal pension then I won't get a HRT rebate from the tax man, but the £10k will be grossed up into the pension.
If my company pays £10k into my pension (ie. non-contributory) will I have to pay £2k extra tax per year?
If I top up my pension with another £10k through salary sacrifice will I be taxed another £2k?
A company contribution is paid gross (as an allowable expense for corporation tax) so £10k is £10k. This does not affect your tax position.
Additional contributions will be treated in the same way as your first question if being made by you. You will not be charged tax to put money into a pension fund in your scenario - and will save tax by lowering your salary.
I can understand why in the current climate they are doing this but can't help thinking that we're creating problems for the future.....it's undoubetedly becoming ahrder and harder for people to save a meaningful pension. Net result in twenty years time we'll have a retired population that will either be more dependant on satate benefits or have less disposobale income which will be bad for tax receipts and the economy in general in the future.
Toro Rosso said:
If you pay in £10k, this is the net figure. This is grossed up by the basic rate of tax (20%), so that £12,500 goes into your pension fund. The remaining tax relief is obtained by an extension of your basic rate band (claimed on your tax return) so that more of your income is only charged at 20% rather than 40% and thus you are given all the relief.
A company contribution is paid gross (as an allowable expense for corporation tax) so £10k is £10k. This does not affect your tax position.
Additional contributions will be treated in the same way as your first question if being made by you. You will not be charged tax to put money into a pension fund in your scenario - and will save tax by lowering your salary.
Thanks, however my questions related to the impact of the proposed pension changes, although I didn’t make that clear.A company contribution is paid gross (as an allowable expense for corporation tax) so £10k is £10k. This does not affect your tax position.
Additional contributions will be treated in the same way as your first question if being made by you. You will not be charged tax to put money into a pension fund in your scenario - and will save tax by lowering your salary.
Under the proposals will I be charged tax on company and additional contributions?
LeoSayer said:
Thanks, however my questions related to the impact of the proposed pension changes, although I didn’t make that clear.
Under the proposals will I be charged tax on company and additional contributions?
Sorry, I can see that now.Under the proposals will I be charged tax on company and additional contributions?
Not sure how the mechanism would work, but I would guess if it was your own contribution there would be a charge. As you are technically not getting any tax releif on the company contributions, I cannot see how they can easily impose a charge on these and possibly they do not intend to.
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