Wealthy savers urged to top up pensions now
Britain's highest earners are being advised to consider topping up their pensions ahead of the post-election Budget on 8 July.
Nigel Green, chief executive and founder of the De Vere Group is warning that the new Tory government is likely to restrict the amount of money higher earners are able to save towards pensions tax-free.
"This bonus Budget, the first of a new parliament, is likely to be used to deliver bad news, as it will allow the longest time for the electorate to forgive the government before the next general election. In order to demonstrate that 'we are all in it together' it is probable that the Chancellor will target higher earners' pensions tax perks."
This was made clear in the party's election manifesto, which stated that an increase to the inheritance tax allowance to £1 million would be funded by a reduction in the tax relief available to higher earners.
As a result Green believes those that earn in excess of £150,000 and pay the 45% rate of tax should urgently review their tax position and consider making a large lump sum contribution to their pension before 8 July to capitalise on the highest rate of pensions tax relief while it's still available.
"This latest policy would be another hammer blow for those who want to get on in life through hard work and by prudently saving for the future," he said.
Time running out
Tom McPhail, head of pensions research at Hargreaves Lansdown, agreed and said: "The curtain is coming down on tax reliefs for higher earners and it is now a case of when they lose out, rather than if. Investors who will be affected should make the most of the 45% pension tax relief while they still can; past experience points to the possibility of the door being slammed shut on budget day."
Green added that that the move is "another example of how politicians of all parties seemingly believe that pensions are an easy and convenient target to bolster government coffers as and when they need to".
Pensions savings limits have already been hit this year, with the announcement in the last Budget that the lifetime allowance (the maximum that can be saved into pensions during your life) would be slashed from £1.25 million to £1 million in April 2016.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
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