Paul Crichton
Changes to pension tax relief seem to be at the top of the list of potential changes in the upcoming Budget and could generate more tax revenue than changes to CGT and IHT combined. Following the abolition of the lifetime allowance charge and the significant increase in the annual pension allowance to £60,000 as of 6 April 2023, Rachel Reeves has suggested that these adjustments may be viewed as overly generous, raising the possibility of their reversal or modification.
Possible changes to pensions include:
- Limiting pension tax relief for individuals to basic rate or possibly a 30% flat rate
- Further limiting (or abolishing) the 25% tax free lump sum
- Freezing or reducing the £1,073,100 lump sum and death benefit allowance
- Making undrawn pension funds subject to inheritance tax
- Limiting the amount of employer pension contributions that can be paid by way of a salary sacrifice.
Pension changes typically take effect from the start of the tax year on 6 April, however, there have been mid-year changes in the past. Taxpayers should therefore consider bringing forward pension planning in case changes take effect from the date of the announcement.