Reply to: Higher rate tax relief on pensions to be abolished?

[expat]

Why would you get taxed on an ISA on payout

I thought that everything that went in - and stayed in was tax free.

If/when you take it out, then you only pay tax on any interest that the pot subsequently earns once it's out.

Sorry. Blunder. It's not quite as bad as I figured.

[IR35 Avoider]

I think (hope) this is just a scare story dreamed up by certain pension providers to drum up business.

To be logically consistent and fair, if higher rate relief on personal contributions is banned, then company contributions should be treated as a taxable benefit on which higher-rate tax is still to be paid, and defined benefit pension accruals (like what MP's and civil servants get) should likewise bring a tax bill with them, for those who fall into the higher rate bracket.

Of course, they may decide against being logically consistent and fair.

[Cyberman]

Being caught in IR35 for my "day job", I also pay into a SIPP as the figures do come down more on the side of pensions that the CT route.

If HRT is removed then I will stop paying in anymore and use alternative investments.

What winds me up is the view the widely held belief that Higher Rate taxpayers are receiving money from the government. Some of the quote state that removing HRT will "save the treasury $2billion" - as if they're simply giving us money.

FFS, it's our money to begin with - we simply don't get taxed on the portion that we invest for our retirement (at least until we take it out). We're not being given the relief - it just gets paid into the pot gross.

What these ignorant people also ignore is that you pay tax on your pension when you draw on it 30 years or so down the road, so in no way is it 'free' money. A good pension also serves to ensure that HMG has less to pay out in benefits to pensioners.

[ASB]

Absolutely. Probably making the individual who receives the company pension contribution (whether by sacrifice or not) responsible for a tax top-up on his SA, in the same way as now a HRT individual pensions investor reclaims the difference between HRT and BRT on the SA return.

I'm not sure about the difference and the reclaim. As a HRT and contributor to pension (prior to salary sacrifice) I got my SA return and spoke to the tax office and they said "it depends how the contributions are made". I **think** the reclaim only occurs if it is private pension paying the contributions personally. In my case I checked the numbers carefully and discovered that the X that was my contribution was simply removed from my gross pay and handed over (company scheme).

It was very confusing, but my employer contribution was X% of gross salary and mine was Y. Thats what got handed over.

This might make it a bit more difficult to carry through, since rather than not giving extra relief I think anybody contributing to a company scheme would actually need to be charged extra tax through a code adjustment.

[centurian]

I cannot think of what I will do if this happens. Paying straight into a SIPP is the only worthwhile way for me to save money for my retirement (if any), when I am sure not to be paying HRT but not certain of having to pay BRT!

Being caught in IR35 for my "day job", I also pay into a SIPP as the figures do come down more on the side of pensions that the CT route.

If HRT is removed then I will stop paying in anymore and use alternative investments.

What winds me up is the view the widely held belief that Higher Rate taxpayers are receiving money from the government. Some of the quote state that removing HRT will "save the treasury $2billion" - as if they're simply giving us money.

FFS, it's our money to begin with - we simply don't get taxed on the portion that we invest for our retirement (at least until we take it out). We're not being given the relief - it just gets paid into the pot gross.

At my age, with current interest rates, an ISA is of no interest. What use is it to bill £1000, pay ERs and then £887 salary, get £523 net salary, put it in an ISA, and over 10 years at 4% have it rise (tax free!) to perhaps £784, which will be taxed BRT on payout so effectively worth £628?

Why would you get taxed on an ISA on payout

I thought that everything that went in - and stayed in was tax free.

If/when you take it out, then you only pay tax on any interest that the pot subsequently earns once it's out.

[expat]

I really hope thay leave CT relief alone. Without that it has then removed just about the only remaining reason to be running your own Co as a Ltd Co contrator. It would be a nail in the coffin for sure.

The complication is that as things stand, company pension contributions are straighforwardly gross, in a sense they do not so much attract CT relief, as simply not come into it. For this reason they are still tax-free if your contract is in IR35. If you took company pension contributions out of the area of CT-free costs, and into CT-liable, then they would naturally come into the income side of the deemed payment calculation, and so risk attracting income tax as well as CT. That would certainly eliminate their attractiveness.

[Fred Bloggs]

Absolutely. Probably making the individual who receives the company pension contribution (whether by sacrifice or not) responsible for a tax top-up on his SA, in the same way as now a HRT individual pensions investor reclaims the difference between HRT and BRT on the SA return.

I really hope thay leave CT relief alone. Without that it has then removed just about the only remaining reason to be running your own Co as a Ltd Co contrator. It would be a nail in the coffin for sure.

[expat]

If they do do this (and I think it is quite likely) then this will surely just encourage people to move into salary sacrifice for all or part of their contributions.

I imagine therefore there will also be some considerable tinkering for the rules in this area - perhaps disallowing CT relief. Likey to be yet more admin burden and presumably the tinkering would amount to be a neutral measure which somehow accidentally raises another few billion in CT.

Absolutely. Probably making the individual who receives the company pension contribution (whether by sacrifice or not) responsible for a tax top-up on his SA, in the same way as now a HRT individual pensions investor reclaims the difference between HRT and BRT on the SA return.

[AtW]

They'll go for it without doubt and justify it as tax on the "rich" like that banker from RBS.

[Cyberman]

It will just deter even more people from investing in pensions and thus the stock market, but it could be good for the housing market at it makes property even more attractive. Bring it on I say !!

[ASB]

If they do do this (and I think it is quite likely) then this will surely just encourage people to move into salary sacrifice for all or part of their contributions.

I imagine therefore there will also be some considerable tinkering for the rules in this area - perhaps disallowing CT relief. Likey to be yet more admin burden and presumably the tinkering would amount to be a neutral measure which somehow accidentally raises another few billion in CT.

[expat]

I cannot think of what I will do if this happens. Paying straight into a SIPP is the only worthwhile way for me to save money for my retirement (if any), when I am sure not to be paying HRT but not certain of having to pay BRT!

At my age, with current interest rates, an ISA is of no interest. What use is it to bill £1000, pay ERs and then £887 salary, get £523 net salary, put it in an ISA, and over 10 years at 4% have it rise (tax free!) to perhaps £784, which will be taxed BRT on payout so effectively worth £628?

With company contributions to a SIPP, in goes £1000, it may rise over 10 years to £1500, then be taxed BRT so worth net £1200. (Inflation apart).


It makes all the difference to me that in my impoverished retirement I pay only the tax on my then income, not on what my contracting income was years before. This is the only way I can think of to do it, apart from these other more imaginative plans:

A. Take part of my retirement every year: if I work less and bring my income below HRT threshold, I'll have to work longer but I will get the tax break.

B. Don't save anything.

[expat]

Problem is, Labour has got previous in screwing private pensions. The 1997 pension pillage which is bringing in over £5 bill a year. They still get plenty of flak for this. They might think it's a risk worth taking to get another 7bill from higher wage earners who mostly don't vote labour anyways.

Certainly, Brown needs funds more than ever. And as you say, losing all the votes of HRT payers who pay a lot into a pension will not be the worst that he could imagine.

[Turion]

Problem is, Labour has got previous in screwing private pensions. The 1997 pension pillage which is bringing in over £5 bill a year. They still get plenty of flak for this. They might think it's a risk worth taking to get another 7bill from higher wage earners who mostly don't vote labour anyways.

[expat]

Surely they wouldn't dare? ...
I don't think it will ever happen, it would be a massive vote loser, kill the private pension and investment industry, damage the stockmarket and create huge resentment as the gap between public sector final salary pensions and private contribution-related schemes grows even bigger.

Like Brown's 1997 pension grab? Yeah, they wouldn't dare.