Is a change to tax relief on pension contributions on the horizon?
There is much speculation that tax relief on pension contributions could be slashed. We’ve heard it all before but could 2022 be the time?
Tax relief on pension contributions encourages taxpayers to invest in their own retirement and thus take some of the burdens off the State. Generally speaking for every £100 a taxpayer invests in their pension it is topped up by an extra £25 from the government. Those who pay tax at higher rates receive additional tax relief at 25% (or potentially as high as 31.25% if your income exceeds £150,000; although those with income exceeding £240,000 will see the amount they are able to contribute tapering down to a minimum of £4,000).
Pension tax relief costs the Treasury around £41 billion per year and it is estimated that this new cap could save c£10 billion.
It would be massively unpopular to withdraw pension tax relief completely however it has been suggested that when the Chancellor delivers his Spring Statement on 23 March 2022 he may seek to cap this tax relief at 25% for everyone. If this happens there will be winners and losers.
Unused pensions reliefs can be carried forward for three years. Now is a good time to determine how much relief you have brought forward with a view to maximising contributions and reliefs available before 5 April 2022.
Please call one of our private client tax specialists to help you understand how you can best maximise your pension tax reliefs on 01223 810100 or email us at help@cklg.co.uk
