One of the proposals was to reduce the tax relief on pension contributions for high earners (in order to fund an increase in the effective inheritance tax threshold for married couples and civil partners to £1m, with a new transferable main residence allowance of £175,000 per person).
The reduction in pension contribution tax relief will apply to those earning over £150,000, and is to be achieved by gradually reducing the annual allowance from £40,000 (for those earning £150,000 or less) down to £10,000 for those earning £210,000 or more. The annual allowance is the maximum that can be contributed by an individual into a pension and receive full tax relief. Therefore, for those affected, the change will lead to a loss of up to £13,500 p.a. in tax relief.
If the Chancellor does include these changes in his Budget, it is still uncertain when they will take effect. History suggests they will not be retrospective, but they may come into place immediately, or at the end of the financial year.
Separately, in the Budget back in March, the Chancellor also announced a reduction in the lifetime allowance from £1.25m to £1m from April 2016. Whilst no details are yet available, this reduction will almost certainly be accompanied by an opportunity for those affected to apply for Fixed Protection 2016 and thereafter to retain a lifetime allowance of the current £1.25m. However, the trade-off for this protection is that no further pension contributions would be allowed from April 2016 so only a few months remain to make any final pension top-up.
For those high earners who may be impacted by these changes, it may be prudent to make any planned 2015/16 pension contributions ahead of 8th July. Similarly, those potentially impacted by the reduced lifetime allowance should consider whether a final pension contribution in 2015/16 will be beneficial. There may even be scope to use up unused annual allowance from previous years, up to a maximum of £180,000 where possible.
As always, we would encourage you to start thinking about how these issues might apply to you and your family and to get in touch using the details below if we can help with your planning.