TaxPersonal TaxLate calls to ringfence pensions from Budget tax raid

Late calls to ringfence pensions from Budget tax raid

Government set to lower lifetime allowance on pensions, despite calls to leave them untouched

Late calls to ringfence pensions from Budget tax raid

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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