Chancellor Rishi Sunak is plotting a tax increase on rich peoples’ pension pots in next week’s Budget.
Sunak is set to freeze the lifetime allowance, which amount you can save toward your pension before incurring large tax charges, at just over £1m, according to the Times this morning.
The lifetime allowance freeze will last for the rest of this parliamentary term and increase the HMRC tax take as more people move over the threshold and face a 25 per cent tax on any extra income from their pension pot.
The tax rise for larger pension pots is predicted to impact around 10,000 rich savers and generate close to £250m in funding for depleted HMRC coffers.
If the amount rose in line with inflation it would go up by £88,900 by 2024. However, freezing the allowance means the additional pension savings will face the 25 per cent levy — equivalent to £22,225.
Mike Smedley, partner at pensions advisory firm Isio said pensions for higher income earners are an “obvious target” for Sunak.
“We’ve seen the government tinker with the Lifetime Allowance many times before. If Budget Day follows the rumours it will create more uncertainty for members and highlight the disparity in the rules between Defined Benefit (DB) and Defined Contribution (DC) pension schemes.
He added: “Members of DB schemes can receive 50 per cent more pension before the tax rules bite than their DC counterparts.
The chancellor is under pressure to try and increase the government’s tax takings to balance huge spending during the pandemic, while not stifling the economy by overly taxing recovering sectors.
Former Prime Minister David Cameron yesterday urged Rishi Sunak not to hike taxes in next week’s Budget amid speculation he is set to increase corporation tax to help pay off the UK’s Covid spending.
Cameron said increasing corporation tax “wouldn’t make any sense at all” before the UK’s economic recovery is further advanced and compared the crisis to World War II.