SAVERS and pensions providers are calling for a rethink over an anticipated tax raid on pension pots in the upcoming Budget.
From 6 April, the government is set to impose reduce the maximum amount of pension wealth savers will be allowed to accumulate during their lifetime. While the cap is currently £1.5m, it is set to drop to £1.25m. Anyone who breaches that limit will face a tax charge of up to 55% on the excess.
Previous opportunities to tap into pensions’ capital reserves have generally been passed up due to the political unpalatability of such a move. However, removing higher rate income tax relief for pension contributions could yield as much a £5bn, at a time when the chancellor (pictured) is working to plug a £20bn black hole in the public purse.
The way the levy is expected to work for someone with a pot of £1.5m would see them withdraw £250,000 excess in a lump sum, minus a 55% tax charge of £112,500.
HMRC has recouped more than £230m in charges from retired people caught out by the introduction of a cap on lifetime pension savings, according to official figures.
A Freedom of Information request submitted to HM Revenue & Customs, the Financial Times reports, showed nearly 4,000 individuals faced tax bills averaging almost £50,000, between 2007/08 and the current financial year.
BDO tax partner Richard Rose said dropping the cap would be “an easy revenue raiser”.
“[Dropping the lifetime allowance cap] Hits the higher earners. The timing of this may now be right for the Government to weather any political backlash.”
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Making Tax Digital responses to the consultations expected in January 2017