Newspaper article The Journal (Newcastle, England)

High-Earners Facing New Tax Break

Newspaper article The Journal (Newcastle, England)

High-Earners Facing New Tax Break

Article excerpt

THE tax breaks high earners get on pension savings are to be cut dramatically to save pounds 4bn a year, it was announced yesterday.

The amount people can save tax-free into a pension each year is being slashed from pounds 255,000 to pounds 50,000 from next April.

But those on high salaries will continue to receive tax relief on pension savings at the highest rate at which they pay income tax.

The Government also plans to cut the lifetime pensions savings allowance that benefits from tax relief from pounds 1.8m to pounds 1.5m from April 2012.

The reforms replace the complex changes to the regime proposed by the previous government, under which people earning more than pounds 150,000 would have had the level of tax relief they received gradually reduced to 20%, despite the fact that they paid income tax at 50%.

The previous proposals sparked outrage from the pensions industry, with experts warning that the rules would be complex to administer and might put people off saving through a pension.

Yesterday's measures received a broad welcome, although there were concerns that some people on middle incomes who had defined benefit schemes might face an unexpected tax bill.

As part of the reforms, the Government is raising the rate at which increases to the pensions accrued in defined benefit schemes are valued.

This means that someone whose pension entitlement rose by more than pounds 3,125 a year could be hit with a tax bill.

To help protect workers on low and moderate incomes, people who exceed the annual allowance because of one-off spikes in pension accrual will be allowed to offset it against their unused allowance from the previous three years. …

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