Pensions offer generous tax relief, which increases the value of contributions by 20%. What’s more, higher rate taxpayers can claim a further 20% relief through their tax return, meaning that every £100 in their pension, in effect, costs just £60.
In documents published in November 2016, the Treasury said that tax relief on pension savings is among the “most expensive” sets of reliefs, costing £48 billion in 2014/15. It added that “around two-thirds of the tax relief [goes] to higher and additional rate taxpayers” and that “it is important that resources focus where there is most need”.
Furthermore, Theresa May has said she intends to focus her attention on those “just about managing”. Curbing tax breaks for high earners could therefore be seen as expedient in her bid to attract centre-ground support and trim billions from the deficit.
Nobody knows whether the new chancellor will take the opportunity to reform pension legislation in the next Budget, but tax privileges for higher earners are very unlikely to become more attractive.
If you are a higher rate tax payer, with the available cash not earmarked for other purposes and you haven’t used all your pension allowances, it would make sense to bring forward pension contributions to before the Budget in March. It could make all the difference to your financial future.
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.