What Future Higher Rate Pension Relief?

In the third of the prime ministerial debates, Gordon Brown indicated that higher rate relief would be restricted for those with income of £100,000 or more (a much lower income threshold than that applicable under the anti-forestalling provisions or the new restricted relief provisions due to take effect from April 2011).  Although it was subsequently indicated that this was a slip of the tongue, Mr Brown repeated the £100,000 threshold in an interview with Jeremy Paxton on the BBC.

These possible slips by Gordon Brown bring the future of higher rate pension relief sharply into focus. At a time when the country’s finances are in a parlous state there must be a huge temptation to increase the nation’s coffers by an estimated £5.5 billion by abolishing higher rate relief.  The Liberal Democrats have already made this a central plank of their election strategy.

Whether Gordon made a slip or not by referring to a lower threshold of £100,000 income, the current restricted pension tax relief measures could herald the total abolition of higher rate relief should Labour be re-elected.

While the Tories have indicated they are not in favour of the current restricted tax relief provisions, the present state of the country’s finances does not permit them to remove the restrictions, if they are elected.  The additional finance produced by the restricted relief provisions is clearly important. The Tories may, however, agree to its removal if it is replaced by a measure providing a comparable tax take. It has been suggested to them that a reduction of the Annual Allowance to around £50,000 could achieve broadly the same tax return and this is a route they may consider.

Wealthflow Comment:

Higher rate relief set to come under even greater threat.

Duncan R Glassey
Senior Partner – Wealthflow LLP

duncan.glassey@wealthflow.com

This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Errors and omissions excepted.