The bank levy, lifetime allowance and pension contributions are among areas suggested for change tomorrow (8 July) in the summer Budget.
Over the weekend, George Osborne revealed plans to end inheritance tax on family homes worth up to £1m, but so far everything else is still up for grabs. So here is our list of the most talked about themes expected to be delivered from the dispatch box.
The lifetime allowance is already set to reduce to £1m and is also assessed more beneficially for final salary scheme members than for money purchase investors, so many see it as ripe for further alteration.
Richard Libberton, a private wealth manager at Anderson Strathern Asset Management, said that current changes will bring another tranche of pensions savers into a potential tax trap without careful planning.
“Given the LTA was £1.8m in 2006, some clarity over the future direction would be welcome. Incoming pensions minister Ros Altmann had been concerned over this move before her appointment and we are keen to see how this plays out.”
David Brooks, technical director at Broadstone, stated that Mr Osborne should scrap the lifetime allowance once and for all.
“If some pension scheme members are to lose tax relief, therefore pay income tax in full on their pension contributions it cannot be right that they should then pay income tax again on the proceeds.
“Under the present system those that do face paying full income tax on contributions then face a 55 per cent tax on anything left when they retire, giving an incredible 75 per cent tax rate; the chancellor must address this if he is to remove tax reliefs for some.”
Bill Dodwell, head of Deloitte’s tax policy group, explained that the annual pension allowance is intended to cap tax relief on pension contributions by applying an income tax charge where pension contributions made in pension input periods ending in a particular tax year exceed £40,000.
The Conservative Party proposed that the annual allowance would be reduced for the highest earners by restricting it to 50p for every additional £1 of income between £150,000 and £210,000 subject to a minimum annual allowance of £10,000.
“Those earning over £210,000 will therefore receive a maximum annual allowance of £10,000. It is thought these changes will apply from April 2017,” he added.
Nathan Long, head of corporate pension research at Hargreaves Lansdown, commented that pensions could do with a period free from tinkering, but crucially must not be perceived as complex, adding that limiting the annual allowance for higher earners would add extra complexity, which simply erodes people’s appetite to save.
“This is also a headache for the employers of these higher earners, who really do not need another obstacle on their path to auto-enrolment compliance,” he said, arguing for a move to flat rate relief and abolishing the lifetime allowance makes sense.
Pension tax relief