🌹 Labour’s Budget Plans – Rumours – DAY 2 🌹

Continuing our daily discussion of the potential changes introduced by the Labour Budget, today we’re looking at Pensions.

• Reduce the amount of so called “tax free cash” you can draw from your pension. In very basic terms, you can draw 25% of your pension income “tax free” and this is capped at £268,275 now there is no Lifetime Allowance to worry about.
• Bring pension tax relief on personal annual allowances (the amount you can pay into a pension, related to your relevant earnings, that you get tax relief on) into a flat rate regime. Rather than 20%, 40% and 45% tax relief depending on your tax rate, you may only receive a flat 20% or 30% tax relief.
• Lower the level of contributions you get relief on – the annual allowance – currently £60,000.
• Re-introduction of the Lifetime Allowance (LTA) – was previously £1.073m and in simple terms you paid a tax on your pension at crystallisation when it had grown to over this amount.
• Bring pensions into someone’s Estate upon death, meaning that they would be exposed to paying IHT (which they aren’t currently).

Our Comment:

• Tax free Cash – it has been sacrosanct to now and tinkering around with these things when people have been making long-term plans around their pension is just bloody awful in my view. But hey-ho! I personally don’t think too likely but wouldn’t be the biggest surprise if Rachel Reeves did though.
• Flat rate pension relief, Reeves is a known supporter of this. Could work to a basic rate taxpayers’ advantage if the flat rate was higher than 20%. Quite likely, albeit would hurt Doctors and senior NHS.
• Would they do anything regarding company contributions, and the ability for the company to fully offset corporation tax? Let’s hope not. They could remove some or all of the National Insurance Contribution exemption for employer paid pension contributions – so creating a 13.8% charge on these contributions above say a certain level? Uugghh – possible, hopefully unlikely, and being muted more heavily now.
• Lowering of the annual allowance – possible.
• LTA re-introduction – unlikely.
• Pensions into Estate – would be complex with many pensions in effect being trusts. Never say never, but unlikely.

This post represents just one part of the potential changes the Labour Budget may introduce and our opinions. To download a PDF containing our full thoughts, please follow the below link.