Last year an extreme model was being mooted suggesting Mr Osborne might scrap pension tax relief altogether, by doing so he could net the Exchequer a huge £35bn annual saving and align the pensions system with Isas through the creation of so‑called “pension-Isas”. But current sources suggest that this not the Government’s preferred “solution” to cap the cost of pension tax relief. But the most likely outcome could be a further cut back to the relief available to higher earners.
If you are one of those 4.5 million people who pay 40pc tax on the top part of your income, you are likely to lose tax relief at the 40pc rate, the relief is likely to be limited to 20pc, or the basic rate of tax. For every £100 a basic-rate taxpayer contributes to a pension, the Government adds a further £25. For every £100 a higher-rate taxpayer contributes, the state adds this £25, and the taxpayer can then claim a further £25 relief via his or her tax return. In total the benefit for a higher-rate taxpayer is thus £50 for a net £75 contribution – or a 67pc uplift. And this is probably what the Exchequer will target.
Source: The Telegraph
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