Got this in some email from ContractorFinancials, not that I use them for anything:
Been used to H-L, much as I like them, scaremongering about the end of higher rate tax relief for some time but this tighter annual cap sounds much more likely than abolishing it altogether.
It would mean a change of strategy for anyone planning on stuffing in over £50k pa in their last few years of contracting to make up for low contributions over much of their previous working life.
Not sure if company contributions would get round it - e.g. your company could gross £130k but you could put 50k pa in a SIPP, be immune to any pension rule changes, and also avoid the effective marginal 60% tax rate over 100k. Or will they add up employer and employee contributions when calculating your limit...
Hidden Pensions Bombshell
When George Osborne stood up to address the house with his emergency budget, hundreds of thousands of savers, many of who are Freelancers collectively held their breath as we waited to hear the decision on higher rate tax relief.
Many would have been relieved to hear that there will be no change to the ability to receive relief at your highest margin rate of income tax over the coming tax year however, as the afternoon went on, an alarming discovery was made in the small print of a treasury document that accompanied the budget report.
Osborne hinted that there would be a consultation with industry professionals and governing bodies to decide another way to plug the £3bn hole left in the deficit by not cutting the higher rate relief for pensions, and worryingly, it looks like their solution may be to lower the annual limit for contributions. A paragraph in the treasury’s document reads “provisional analysis suggested that an annual allowance in the region of £30,000 to £40,000 might deliver the necessary yield”.
This could have disastrous implications for the many Contractors who currently use pension investment as a way of minimising tax liabilities. If the annual limit is reduced from its current level of £255,000 to just £30,000 then this will severely restrict the ability to tax efficiently transfer funds from contract and into personal hands.
When George Osborne stood up to address the house with his emergency budget, hundreds of thousands of savers, many of who are Freelancers collectively held their breath as we waited to hear the decision on higher rate tax relief.
Many would have been relieved to hear that there will be no change to the ability to receive relief at your highest margin rate of income tax over the coming tax year however, as the afternoon went on, an alarming discovery was made in the small print of a treasury document that accompanied the budget report.
Osborne hinted that there would be a consultation with industry professionals and governing bodies to decide another way to plug the £3bn hole left in the deficit by not cutting the higher rate relief for pensions, and worryingly, it looks like their solution may be to lower the annual limit for contributions. A paragraph in the treasury’s document reads “provisional analysis suggested that an annual allowance in the region of £30,000 to £40,000 might deliver the necessary yield”.
This could have disastrous implications for the many Contractors who currently use pension investment as a way of minimising tax liabilities. If the annual limit is reduced from its current level of £255,000 to just £30,000 then this will severely restrict the ability to tax efficiently transfer funds from contract and into personal hands.
Been used to H-L, much as I like them, scaremongering about the end of higher rate tax relief for some time but this tighter annual cap sounds much more likely than abolishing it altogether.
It would mean a change of strategy for anyone planning on stuffing in over £50k pa in their last few years of contracting to make up for low contributions over much of their previous working life.
Not sure if company contributions would get round it - e.g. your company could gross £130k but you could put 50k pa in a SIPP, be immune to any pension rule changes, and also avoid the effective marginal 60% tax rate over 100k. Or will they add up employer and employee contributions when calculating your limit...
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