Rishi Sunak could leave ‘big dent’ in pension pots as Chancellor contemplates tax raid | Personal Finance | Finance
Chancellor Sunak will unveil his Budget in March, and many in Britain are wondering whether changes could hit their pockets. Wealth taxes are reportedly under consideration, as inheritance tax, capital gains tax and pension relief could be reformed. A Financial Times opinion piece stated this week that a wealth tax could be an appropriate solution for the UK amid “unpalatable choices” brought about by the pandemic. Tim Bond, a portfolio manager at Odey Asset Management, suggested the Government should call for a one-off wealth tax on the richest 10 percent.
This is a measure that would impact those with lots of savings in their pension pot.
Aegon UK, an Edinburgh based financial services provider specialising in pensions, warned in November that a rumoured move to create a flat rate on pensions tax relief at 25 percent could leave a “big dent” in top earners’ pension pots.
This came after a Government source said in November that the Chancellor was “very attracted” to the idea of a flat rate.
Aegon pensions director, Steven Cameron, said the rumoured new system “is seen by many as a fairer way of sharing this Government incentive across people of all earnings bands but would also likely produce a cost saving for the Treasury”.
He added: “It would be good news for basic rate taxpayers who’d receive a more generous bonus but would create a big dent in the future pension pots of higher and additional rate taxpayers unless they increased their contributions.”
Mr Cameron said that the changes would leave high rate pension tax payers a tough decision, but added that it would be “an even better deal for those paying basic rate income tax”.
He continued: “Most individuals paying higher rate tax when working pay basic rate income tax once they’ve retired. For them, pensions would still be very tax efficient under a flat rate 25 percent tax relief system.
“The group for whom it’s less clear are those who might be higher rate taxpayers in retirement, who might need to weigh up the pros and cons. But like all employees who contribute to a workplace pension, they would also receive valuable employer contributions offering an additional attraction.
“Before implementing a move to a flat rate of pensions tax relief, more thinking is needed on how this would work for those contributing to a defined benefit or final salary scheme.
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Mr Sunak was said to be considering slashing relief from 40 percent for higher-rate taxpayers to a flat rate of 20 percent.
So far, nothing has been confirmed as Mr Sunak continues to evaluate his options to recoup funds and pay for the coronavirus pandemic.
Britain’s tough new lockdown measures have dented consumer confidence and reduced spending to levels not seen since last spring, according to two separate surveys.
Both the British Retail Consortium and Barclaycard said spending in January was at its weakest since May as booming online activity failed to compensate fully for the closure of stores.