With the October Budget fast approaching, there are strong rumours that pension tax relief could be a key focus for potential changes. These adjustments could raise more tax revenue than both Capital Gains Tax (CGT) and Inheritance Tax (IHT) reforms combined.
As recently as 6 April 2023, we saw the abolition of the lifetime allowance charge and a notable increase in the pension annual allowance to £60,000 per year. However, Rachel Reeves has commented that these changes were too generous, sparking speculation that we may see them reversed or scaled back in the upcoming Budget.
Here are some possible pension changes to look out for:
- Limiting pension tax relief to the basic rate, or potentially introducing a 30% flat rate;
- Reducing or abolishing the 25% tax-free lump sum;
- Freezing or reducing the £1,073,100 lifetime lump sum and death benefit allowance;
- Introducing inheritance tax on undrawn pension funds;
- Limiting the amount of employer pension contributions via salary sacrifice arrangements.
While pension changes typically take effect from the beginning of the tax year on 6 April, there have been instances of mid-year changes in the past. To avoid any potential impact, it may be wise for taxpayers to consider accelerating their pension planning now, in case these changes come into force immediately following the Budget announcement.
At A&C Chartered Accountants, we’re closely monitoring these potential changes. If you’re concerned about how they could affect your retirement planning or need advice on how to maximise your pension contributions, feel free to reach out to our team. We’re here to help you navigate these uncertain times with tailored strategies for your financial future.
