Chancellor Philip Hammond will address Parliament on Monday and outline his earlier than planned 2018 Budget.
With Brexit dominating the news, it will have to be somewhat contentious to provide major reaction and it seems difficult to predict what, if any, changes he will make to pensions savings and taxation.
Could the amount you’re able to contribute to your pension each year (annual allowance) be reduced? Could a flat rate for pensions tax relief be applied, say 25% or 30%? What about the lifetime allowance (the maximum you can accumulate in a pension fund without further tax penalties) could this be reduced from £1.03 million?
Well, we have been given some hints already. It was reported recently in New Model Adviser that the government has rejected calls from MPs on the Treasury Select Committee to scrap the Lifetime ISA and it’s also been indicated that the Treasury will not be fundamentally reforming pensions tax relief.
However, this is a monumental Budget. It’s the final government spending plan announcement before the UK leaves the EU in March and the Treasury has indicated it will help to “build a strong, more prosperous economy”.
With the government committing to allocate an extra £20 billion a year to the NHS by 2023, Chancellor Hammond has a big job on his hands.
Here are some of my predictions for what might be targeted:
Pensions – could higher earners be targeted?
The chancellor recently commented that pensions tax relief is “eye-wateringly expensive” and costs the government around £40bn a year.
He could target the tax relief on pensions in a couple of ways.
Higher rate tax relief on pension contributions could potentially change to a flat rate.
While it’s unlikely the annual allowance will change, the ability to carry forward unused years up to a maximum of £160,000 could also be targeted.
It’s unlikely that the lifetime allowance will change in this Budget. Wait and see.
In most cases, changes are introduced from the following tax year or beyond, which is largely why the Budget moved to the autumn – to allow time to respond to the changes before the new tax year starts in April.
This can provide an opportunity to maximise contributions with the highest rate tax relief or to carry forward years of unused allowances.
We never know what the Budget will bring until the announcement on the day, I’ll be watching with interest on Monday!
