There has been much press speculation that the Government is considering cutting higher rate tax relief for pension contributions in the March Budget. However, many Tory MPs are said to be up in arms at such a move and have been trying to quash such a reduction.
There are also concerns that such a complex change to pensions relief could come into effect with very little advance warning.
If you pay tax at a higher rate, the pension relief you can claim should not be underestimated. Even if we don’t see a change in the upcoming Budget this is a move that has been mooted for quite some time and could happen over the coming years. If you are considering making a pension contribution this year, you should consider maximising your contributions just in case changes are announced on Budget day.
You can currently claim tax relief at your highest rate of Income Tax for your private pension contributions, subject to the overriding limits. There is an annual allowance for tax relief on pensions of £40,000. There is also a three-year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years if you have made pension savings in those years. There is also a lifetime limit for tax relief on pension contributions. The limit is currently £1.055 million.
Please note, there is a tapered reduction of the annual allowance for high earners. If your income is in excess of £150,000 you will suffer a reduction in your annual allowance. For every complete £2 your income exceeds £150,000 the annual allowance is reduced by £1, up to a maximum reduction of £30,000 if your income is over £210,000.