A new chancellor, a new chance to speculate about pensions tax relief.
This morning The Times reported that a cut to the rate of relief for high earners is back on the table, as Prime Minister Boris Johnson sits down for Budget talks with his new chancellor Rishi Sunak.
Sunak was appointed in dramatic circumstances last week after incumbent chancellor Sajid Javid resigned over demands from No 10 to sack his advisers and hand over control of the Budget process.
The paper reports the Treasury has drawn up plans to cut higher rate tax relief to 20%. It says the move would raise £10 billion a year for the Treasury.
Yesterday it was reported plans for a so-called ‘mansion tax’ had been dropped, along with other mooted ideas, such as a potential annual wealth levy, after it became apparent that it could spark a backlash in the Tory heartlands.
However, The Times reports on comments by government sources that pension tax relief is considered ‘in a different category’ and that the current system is ‘perverse’.
Higher-rate taxpayers receive 40% tax relief on pension contributions, compared with 20% for lower earners. However, as many financial advisers like to point out, those who remain higher rate payers in retirement are essentially taking part in tax deferral – reducing the perceived over-generosity of the system.
Plan to scrap higher rate tax relief have found their way into headlines ahead of several recent Budgets. Leaking the proposal ahead of time gives the government a steer on how unpopular the measure would be with voters, but each chancellor will still be keen to consider the move given the amount of money the exchequer could ‘save’ and use to fund other policies.
For example, the chancellor will have to find a way to fund the £100bn HS2 rail link, after the prime minister gave the controversial policy the green light last week.
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