Scrapping higher rate relief from pension contributions could make the NHS pensions crisis worse – comment from Tilney10 February 2020
It has been reported in the press that the Chancellor of the Exchequer is considering plans to introduce a “mansion tax” on high value properties and also to remove higher rate relief from pension contributions.
Commenting on the report, Gary Smith, chartered financial planner at Tilney, says: “A potential of scrapping of higher rate tax relief on pensions has repeatedly reared its head since George Osborne commissioned a consultation into the future of pensions tax relief during his tenure as Chancellor. A new Government with a commanding majority may well feel it is a position to implement such a policy that would prove unpopular with those impacted.
“However, in contemplating such as move, the Government needs to give careful consideration as to how this might impact public sector professionals, especially doctors working in the NHS, where previous tinkering with pension taxation has caused chaos. I would be interested to know how the removal of the higher rate pensions tax relief could be applied to public sector pension scheme members, as their pension contributions are currently deducted from gross salary before income tax is calculated, thus they automatically receive high rate relief. If they were to alter this, it would increase the tax liability for NHS workers, which could actually make the current crisis even worse.
“However, if the Chancellor doesn’t alter Public Sector schemes, this potential reduction in pension tax relief might only apply to private sector workers, which would be grossly unfair. Removing the higher rate relief means that he would also have to scrap salary sacrifice arrangements as higher rate relief would effectively be obtained if this option remains. There are also those business owners who actually make pension contributions through their business to obtain Corporation Tax relief, and these would be unaffected by scrapping higher rate relief.
“It will be interesting to see how any change to pension tax relief would be implemented, but it I believe the need to see a financial planner would be vital to see how these changes could affect you.”
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