Without the benefit of a (reliable) crystal ball, we can only take an educated guess as to what the chancellor may be packing into his red case on March 16th.
No doubt the usual tax levies will be considered but, following the major changes to pensions announced last year, will the 2016 budget introduce more changes to the law applying to pensions this month?
Marketing Stockport member Tori Wastnedge from Bennett Verby spoke to Wealthcare Joint Managing Director, Richard Harris, about the changes he thinks the Chancellor is likely to announce on 16th March:
“If I had to make a prediction about the Spring Budget, if I had to guess, I’d say I think pensions are likely to change from April 2016” said Richard
This much is nothing new. Pension reform featured heavily in the 2015 Budget too, with George Osbourne announcing that high-earning savers’ lifetime and annual allowances will be cut as of 6th April 2016.
“The government is looking for ways to save money,” Richard explained. “They need to find ways to balance the books and tackle the deficit. It is likely that, when the Budget is announced, pensions will be at the forefront of further changes designed to improve the tax-take for the public purse.”
So how does Richard think this is likely to be addressed on 16th March? “I wouldn’t be surprised if we see the tax relief available on pensions equalised,” he said.
That is, whether you earn £30,000 a year or £300,000 a year, you would benefit from the same percentage of tax relief.
“I reckon he might equalise it at 30% across the board,” Richard speculated. “That seems the fairest, cleanest route.”
But while the financial services industry predicts higher tax rates for some, Richard points out that there is some good news. “From 6th April, the personal allowance will increase to £11,000,” Richard reminds us, meaning more of our salary will make it to our bank accounts.
There will also be an increase to the higher rate tax threshold to £43,000, so high-earners will enjoy a bit of relief on their taxable income.
Of course, pensions are a notoriously complicated subject. “We already know that, come 6th April, there will be changes to the pension contribution annual allowance for those of us earning over £210,000.” Under the current rules, high-earners can put away as much as £40,000 a year into their pension without being taxed. But from the new tax year, that tax-free amount will reduce to £10,000.
“And there’s even more to think about!” Richard continued, “If your employer makes pension contributions on your behalf, you’ll want to look out for possible changes to the way this is taxed too.” Richard speculates that the government may seek to tax people for employers’ pension contributions which exceed their annual allowance. “There’s certainly plenty to think about!” he said.
We won’t know whether or not Richard’s predictions will come-true until the Budget is announced on 16th March.
Read the full interview at Bennett Verby
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