Pension Tax Relief changes widely expected in the forthcoming Budget on 8 July 2015 could cost high earners as much as £13,500 per year
Top Rate Tax Payers Could See A Dramatic Reduction In Pension Tax Relief If The Conservatives Push Through Their Manifesto Plans
Pension Tax Relief: “Buy Now While Stocks Last!!!”
On page 69 of the Conservative Party Manifesto 2015, it says "... will be paid for by reducing the tax relief on pension contributions for people earning more than £150,000".
As a result of this pledge, the financial press is buzzing with warnings from financial planners that high earners and affluent SIPP holders should take advantage of pension tax relief before it may be abolished in next month’s Budget.
Anyone earning over £150,000 could see the pension tax relief on their contributions effectively fall by as much as £13,500 a year. With a Budget due on Wednesday 8 July 2015, high earners may have very little time left to benefit from the current levels of pension tax relief.
Unless your contributions are restricted by Lifetime Allowance Protection or Income Drawdown rules, you could contribute £40,000 a year and gain full pension tax relief on this figure at your marginal rate of Income Tax. It's suggested the yearly contribution limit might be reduced by £1 for every £2 you earn over £150,000.
If this comes into force, it means that if you earn £190,000, your contribution limit would fall to £20,000. If you earn £210,000 or more, you would be limited to an annual contribution of just £10,000. And that gives rise to a loss of pension tax relief of £13,500.
Collect Up To £81,000 Pension Tax Relief Now
If you wish to maximise your pension tax relief now in case the manifesto pledge is put into place, you may be able to carry forward any unused allowance from the last three years.
The maximum annual pension contribution in this tax year is £40,000 (2015/2016). It includes contributions made by you and your employer, including both your individual pensions and your employer pension schemes. The maximum contribution last year was also £40,000, but in 2012/2013 and 2013/2014, the maximum contribution was £50,000.
If you carry forward the maximum contribution, you might be surprised to learn that you may be able to make a contribution now of up to £180,000, resulting in pension tax relief which could be worth a staggering £81,000. To qualify at this level, you must have had a pension in each of the years from which you carry forward, and you earn at least as much as the value of your contribution.
Here’s a useful calculator on the HMRC website to work out how much you could contribute.
Whether carry forward continues beyond the Budget or whether it’s scrapped is currently unknown.
Don’t Miss Out On Pension Tax Relief
It’s estimated that roughly 300,000 people could be affected by this change, if it happens.
If you’re one of them, consider bringing forward any contributions now that you were intending to make in the near future to collect the most pension tax relief, just in case the benefit is slashed next month.
Please Share This
If you’ve found this page of interest, please would you kindly send a link to it to your friends and colleagues using the buttons below. You’ll be helping us out, and they might appreciate it too. Thanks, it's much appreciated.
AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
Get Valuable SIPP And SSAS Insights Emailed Directly To Your Inbox Every Monday
As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
Please read our full Terms which includes criteria for SIPPclub membership.