Pension tax relief may be restricted further |
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The coalition plans to restrict pension tax relief for higher earners may be even more aggressive than those put in place by the Labour government.
Alistair Darling, the shadow chancellor, originally proposed to cut tax relief for those earning more than £130,000. At the moment the amount a pension pot can grow tax free is £255,000 a year but the new coalition has received support from the National Association of Pension Funds (NAPF) for its plans to reduce the tax exemption to as little as £40,000 a year, after which an extra tax bill would be generated. By 2014-15, an annual allowance of just £40,000 would raise an extra £4.6bn in tax.
Chas Roy-Chowdhury of the Association of Chartered Certified Accountants (ACCA) said the coalition's plans might affect more people in the tax net who were considerably lower paid than those targeted by Labour’s plans for a £130,000 limit.
"It is still likely that many earning a lot less than the £130,000 could be affected where they are in a defined benefit (final salary) scheme," he said.
"This will depend on the valuation method and length of enrolment in the scheme but could affect even those on half the £130,000 especially if they make additional voluntary contributions (AVCs).”
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