Individuals could be allowed to breach their lifetime or annual allowance if they invest in patient capital through their pensions funds, a review commissioned by the government has proposed.
The patient capital review industry panel, led by Sir Damon Buffini, presented its report yesterday (22 November), where it suggested the creation of a patient capital investment vehicle, which would enable raising capital “for investment in UK scale up businesses and capital-intensive research and development-based businesses."
Further retail investment in this fund could be encourage through a specific higher annual and/or lifetime pensions allowance, and consideration could also be given to removing the taper annual allowance for high earners, the report stated.
Given the low interest rate environment, the panel believes adjusting the pensions allowance for the fund “would tap into a significant demand,” the report stated.
The annual allowance is a limit on the amount that can be contributed to pensions each year, while still receiving tax relief, which is currently set at £40,000.
The tapered annual allowance is set at £150,000.
This allowance is applied to high earners, and means that for every £2 of income more than £150,000 a year, £1 of annual allowance will be lost.
The lifetime allowance represents the maximum amount of money a saver can save in their pension pot - and benefit from tax relief at their marginal rate - before incurring an additional tax charge of up to 55 per cent.
The lifetime allowance will increase by £30,000 from April 2018 to £1.03m, since it was announced in the Budget 2015 that from 2018 to 2019 the allowance will be increased by inflation, as measured by the consumer prices index.
According to Sir Steve Webb, director of policy at Royal London, this change would be welcomed by higher earners, who have been facing caps on the amount they can save for their retirement after successive cuts in the annual and lifetime limits for pension tax relief.
He said: “This is especially true for the highest earners, whose annual limit may be as low as £10,000.
“Higher limits for those investing in 'patient capital' could be a revolutionary way of attracting serious money into this form of investment.
“But this would generally be suitable only for more sophisticated investors on the basis of good advice, and might be too risky an asset for those on more modest earnings to put a large proportion of their savings.”
Chancellor Philip Hammond said yesterday (22 November), in his Budget speech, that the enterprise investment scheme allowance would double, and the government would look at facilitating investments in patient capital from pension funds.
Sir Steve noted that the chancellor was not big on detail on this matter, but also that the wording of the review report would have been agreed with the Treasury.
He said: “If these changes in the allowances are going to happen, it would be in the future Budget I suspect.”
maria.espadinha@ft.com
