9th February 2016
Calculations by the Institute of Fiscal Studies suggest that the Chancellor will need to increase taxes or intensify spending cuts in order to deliver on his spending plans and, with this in mind, Hargreaves Lansdown has warned that higher rate pensions tax relief looks set for the axe
The Institute for Fiscal Studies yesterday released its Green Budget. The report looks at the issues and challenges facing Chancellor George Osborne as he prepares for his Budget on March 16.
The IFS believes that there needs to be increased taxes or further spending cuts for the Chancellor to deliver on his spending plans. It says: “there is a significant chance that the government’s current fiscal plans will not deliver the targeted surplus in that year without further tax rises or spending cuts.”
Nathan Long, head of corporate pension research at Hargreaves Lansdown says: “The Sword of Damocles has been hanging over higher rate tax relief for years and now looks odds on to fall as soon as next month. Those looking to take advantage have just over a month to be certain of securing the maximum tax relief. Higher rate tax payers who are planning to top up their pension should do so before the Budget to avoid the possibility of disappointment.
“George Osborne has made pensions interesting; whether it is a question of how best to draw your money out, or how to make the most of tax breaks paying money in, there is evidence of a step-change in people’s attitudes toward their retirement savings.”
“Looking at the period from 1 July to 31 December, comparing 2014 to 2015, we have seen a 56.3% increase in pension contributions.”
Hargreaves Lansdown has launched two calculators to help investors plan for the potential outcome of next months Budget and to take advantage of the relief while it is still on offer:
Tax relief cuts calculator:
Shows how investors might be affected by the reported changes to tax relief (a new flat rate of either 25% or 33%). Should you bring forward contributions, or delay a few weeks? How much could you save by acting now?
Carry forward calculator:
Helps investors work out the maximum you can invest before the Budget. Updated to include this tax year’s split PIP/double allowance.