Pensions and tax are likely to feature strongly in the forthcoming Budget, according to predictions from people in the financial services industry.
Chancellor George Osborne will return for his second Budget of the year on 8 July and his first under a majority Conservative government.
Hargreaves Lansdown has pulled together the points which it believes will be relevant for investors. Here's a snapshot of the main ones:
Pension tax relief change for high earners
'In their pre-election manifesto, the Conservative party promised that if re-elected they would restrict pension contribution allowances for those earning over £150,000. They plan to do this by progressively reducing the Annual Allowance at a rate of £1 for every £2 earned over £150,000, meaning that once someone’s income went above £210,000, they would have an Annual Allowance of just £10,000,' says Hargreaves.
The Bristol-based group says higher earners who are currently eligible to contribute up to £40,000 and secure 45% tax relief should give serious consideration to making investments ahead of the Budget or risk missing out. 'The potential cost to someone earning £210,000 or more could be £13,500 in lost tax relief (45% of £30,000).'
Consultation on pension freedoms
A consultation paper could appear alongside the Budget on pensions freedoms and the problems experienced by investors in accessing their savings. 'Exit penalties, delays and complexity have no place in the pension freedoms,' says Tom McPhail, Hargreaves' head of pensions research. 'Investors should be free to do what they want with their retirement savings; “computer says no” is no longer an acceptable response.'
Personal allowance and higher rate tax threshold boost
With pledges to raise the personal allowance to £12,500 (currently £10,600) and the 40p income tax threshold to £50,000 by 2020 (currently £42,385), Hargreaves believes it is likely we will see some news on this area in the Budget, although unlikely to come in before April 2016.
The reductions to pension tax relief will be used to fund a new inheritance tax break, potentially taking couples with estates of up to £1 million out of paying IHT. Hargreaves adds: 'The Conservatives plan to increase the Inheritance Tax (IHT) threshold for married couples and civil partners to as much as £1 million. This will work by giving an additional, family home IHT free threshold of £175,000 on top of the standard nil rate band of £325,000.'