The Chancellor may use the Budget to curb tax relief on pension contributions for high earners and reduce the tax free lump sum, warns Stephanie Court, tax director at RSM
At present the UK pensions tax system generally exempts contributions, exempts growth as it accrues and levies tax on withdrawals. The current system already provides for some of the tax relief on contributions to be clawed back through annual allowances.
Recent recommendations from think tanks include reforming income tax relief on pension to a single flat rate of relief of 25% or 30%, with that tax relief on pension contributions estimated to be worth £66bn in 2022-23.
HMRC’s figures put the estimated net cost of pensions tax relief, ie, the cost of relief on contributions less income tax on pensions in payment and certain other pension tax charges, at a lower figure of £48.7bn in 2022-23.
