The government is considering axing higher-rate tax on pension contributions in next month's Budget, to help pay for lifting people earning less than £10,000 out of tax.
Danny Alexander, chief secretary to the Treasury, said in an interview with The Daily Telegraph, that he would like to reduce all tax relief on pensions to 20%.
At present a 40% or 50% rate taxpayer can claim tax relief on their pension contributions at their highest marginal rate. So £10,000 placed into a pension costs a 40% rate taxpayer £6,000. At retirement, withdrawals from a pension are then taxed at the individual's tax rate.
Tim Stalkartt, head of financial planning at Bestinvest, says higher-rate taxpayers should act now, before the Budget on 21 March.
"Whilst there has been no confirmation of any change in government policy, previous changes to the rules to restrict tax relief were announced by former Chancellor Alistair Darling without prior warning. Anti-forestalling legislation was enacted on Budget day and immediately closed tax-planning opportunities," he comments.
"If you are considering contributing to your pension in this tax year and pay tax at a rate of 40% or 50%, we urge you to consider doing so now, and importantly within the next five weeks before Budget Day."
Anna Sofat, director of financial services boutique Addidi Wealth, says savers and investors should act quickly before Budget Day, and before the end of the tax year, in case Chancellor George Osborne alters tax allowances or investment rules.
The maximum amount that can be put into a pension each tax year is £50,000. "But you can carry forward from each of the three previous tax years, so that a maximum contribution could be made of £200,000 (assuming no contributions have been made already)," notes Sofat.
She adds: "With the government seeking to increase the tax take, individuals need to take steps to ensure that they optimise all the current allowances and exemptions, as tougher times are ahead and some of the latter may be reduced or even axed in the upcoming budget."
Stamp duty for first-time buyers
One measure that the property sector would like to see in Osborne's red briefcase next month is the extension of the stamp duty holiday for first-time buyers.
Currently the 1% stamp duty charge levied on homes costing between £125,000 and £250,000 is waived for first-time buyers. This holiday is due to come to an end on 25 March.
Stephen Smith, director of external and housing affairs at Legal & General, highlights Council of Mortgage Lending data that shows a 7% jump in mortgages to first-time buyers in December.
"It is unsurprising that we saw an increase in FTBs in December 2011 as the end of the stamp duty holiday looms large in March 2012. It may be worth the government extending the exemption to avoid a slump in sales in the second quarter of 2012 following what look like positive signs of life in the market at the moment."
This article was written for our sister website Money Observer