Government minister warns over pension tax relief
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- Published: Tuesday, 11 August 2015 07:15
- Written by News Editor
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A senior member of the government has warned that high earners should move fast before a tax break worth thousands of pounds a year is removed. The Times has reported that the Treasury is pushing for radical reform of tax relief on pension contributions, raising fears of a new assault on saving.
In the budget, George Osborne announced a consultation on the tax break, which costs the Exchequer £35 billion a year, the equivalent of 8p on the basic rate of income tax. The relief allows higher-rate taxpayers — those who earn more than £42,386 — to save £1 into their pension for every 60p they contribute. Five million high earners benefit by an average of £5,000 a year.
The admission from a member of the government that such a valuable tax perk is under threat is likely to bring a surge of pension investment as better-off savers scramble to take advantage of the relief before it is removed. One minister told The Times: “Savers should grab a bargain at the closing-down sale while they can. Many top earners don’t seem to realise what a generous tax break this is. It might even be worth some people borrowing money to put in their pension.”
Tom McPhail, head of pensions research at Hargreaves Lansdown who has contributed to the consultation, said: “All higher-rate taxpayers should assume the Treasury is about to turn the lights on and bring the tax-relief party to an abrupt end.” The chancellor is still considering all options but some of his officials want to use the consultation as cover to limit or even remove the tax relief entirely.
The findings of the consultation will be published in October and the autumn statement is expected in November. Experts believe that the most likely outcome of the consultation is that pension relief for high earners will be scaled back.
Just making contributions to get tax relief isn't always the best advice.
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