Osborne has tax windfall following pension reforms

Osborne has tax windfall following pension reforms

April’s pension reforms have given George Osborne hundreds of millions of pounds to play with in this week’s Budget, according to analysis by Hargreaves Lansdown.

The Bristol-based firm estimated the Treasury’s likely tax take to be £700m higher this year as a result of April’s reforms – more than double the £320m that the government had originally forecast.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “Although the tax take will bring forward tax revenues and consumer spending, it is important to maintain a stable pension system that continues to encourage and reward responsible long-term savings habits.”

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One area which may turn out worse than forecast is defined benefit transfers, where the Treasury predicted a tax take of £90m but so far advisers have been reluctant to sign them off.

In their manifesto, the Conservatives pledged that those earning above £150,000 would see the maximum level of yearly pension contribution on which they can receive tax relief pared back, on a sliding scale from £40,000 to just £10,000, for those earning £210,000 or more.

David Brooks, technical director at Broadstone, said the current system of pensions tax was a mess. He said: “This may be a step too far but the chancellor should make a volte-face and scrap the lifetime allowance.”

Another manifesto pledge was to raise the inheritance tax threshold to £1m, while from 2017 the existing £325,000 tax-free threshold will be increased with a main residence allowance of £175,000.

George Bull, senior tax partner at Baker Tilly, said the chancellor had limited options following his pledge not to raise income tax, VAT and national insurance. He anticipated Main Residence Relief – the ability to sell your main residence free of capital gains tax – could be reviewed.

Adviser view

Gavin Moffatt, an associate with London-based City Noble, said: “The chancellor’s expected hit to pensions for higher earners, cutting their annual allowance to £10,000, is a trade-off for a crowd-pleasing end of IHT on family homes worth up to £1m.

“Such a move will take higher earners back to double taxation.”

To read more of Financial Adviser’s Budget coverage tomorrow (Wednesday 8th), go to