Tax relief on pensions 

The Chancellor, Rachel Reeves, will deliver her first Budget on 30 October 2024. With the promises made in the general election not to raise corporation tax, income tax, national insurance and VAT, the new Government will need to make some tough decisions in order to enable them to start the process of balancing the books.

One of the areas of concern and a current subject of discussion is tax relief on pensions. Every Budget there are rumours and speculation about changes to pension relief, no more so than in this Budget.

The current tax position is that pension tax relief for individuals is given at their marginal tax rate. Depending on income levels, that could be 20%, 40% or 45% and for those falling into the personal allowance trap, (income between £100,000 and £125,140), the effective rate of relief is even higher.

There are a number of thoughts regarding the potential changes to pension tax relief, from the relief being restricted to basic rate (currently 20%), to it changing altogether to a higher fixed rate of 30% for everyone.

Company pension contributions could also be a target along with pension salary sacrifice schemes, as there is currently no national insurance contributions on these payments. It is thought there could be an introduction of a new national insurance rate for pension payments or the current employer rate of 13.8% could be applied.

Clearly, there are many other options surrounding pensions and other taxes that are available to the Chancellor in her Budget and these are just a few.

If you feel that negative changes to pensions may be made in the budget and you want to take advantage of the tax relief currently available, you may wish to make arrangements to speak to your financial adviser about the possibility of topping up your pension before the Budget.

If you have any queries, we are happy to help. You can email or call us on 0161 370 9600.