Yes, weird that he capped the tax-free Allowance at 25% of the current LTA - so £268,275.
It seems the unlimited LTA doesn't take effect until the 2024/25 tax year. Next tax year it seems to suggest that any excess tax charges will somply not be payable/collected.
Also, tapering has increased to £260k (from £240k)
I dont think the £10k MPAA cap will hinder it too much. Those who had a problem & have taken pension benefits probably have a sizeable pension anyway. And £10k in pension contributions per tax year isnt too shabby.
It may helpfully hasten my retirement, shame about the tax free element but being about the only positive thing in a budget I’ve had in 15 years I’ll take it!
It may helpfully hasten my retirement, shame about the tax free element but being about the only positive thing in a budget I’ve had in 15 years I’ll take it!
so much for hunt supposedly trying to keep older people in work.
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Today's "junior" doctors are tomorrow's Consultants, who will be very thankful that there is no LTA and a bigger Annual Allowance.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Today's "junior" doctors are tomorrow's Consultants, who will be very thankful that there is no LTA and a bigger Annual Allowance.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
Thanks Chancellors.....past & present.
Don't worry, I fully expect it to be reversed when Labour get in!
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Today's "junior" doctors are tomorrow's Consultants, who will be very thankful that there is no LTA and a bigger Annual Allowance.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
Thanks Chancellors.....past & present.
Don't worry, I fully expect it to be reversed when Labour get in!
…..out of interest, if it is reversed when Labour get in, does that mean that those who came back to work/carried on working and now breach the £1m LTA cap would be caught out? If so, then assuming the high likelihood of Labour getting in some time soon, these workers would be mad to come back/continue now, wouldn’t they?
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Today's "junior" doctors are tomorrow's Consultants, who will be very thankful that there is no LTA and a bigger Annual Allowance.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
Thanks Chancellors.....past & present.
But today's junior doctors won't be here on that money - either because they will make the decision that it isn't worth incurring £100k debt training to become doctors or that it is better for them to emigrate, once qualified, to the likes of Australia where they can earn 50% more. There are 50k junior doctors so that £1bn shared between them equates to an extra £20k per annum. So, let's say 10k return to work but that many leave the country. We've gained nothing except and extra £1bn cost and those older doctors who have relatively short working span will have replaced those younger ones who have decades more service ahead of them.
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Today's "junior" doctors are tomorrow's Consultants, who will be very thankful that there is no LTA and a bigger Annual Allowance.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
Thanks Chancellors.....past & present.
But today's junior doctors won't be here on that money - either because they will make the decision that it isn't worth incurring £100k debt training to become doctors or that it is better for them to emigrate, once qualified, to the likes of Australia where they can earn 50% more. There are 50k junior doctors so that £1bn shared between them equates to an extra £20k per annum. So, let's say 10k return to work but that many leave the country. We've gained nothing bar older doctors who have relatively short working span.
I have no idea how many qualified doctors will want to emigrate, or how many will want to qualify in the first place.
But I do know a hell of a lot about the NHS Pension scheme & the career paths of doctors. I was employed by the BMA's financial services arm back in 2000 and have many clients that are doctors. The issue with the AA & the LTA has been a major problem ever since they were both dramatically reduced by George Osborne & then frozen at those limits by successive Chancellors.
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Today's "junior" doctors are tomorrow's Consultants, who will be very thankful that there is no LTA and a bigger Annual Allowance.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
Thanks Chancellors.....past & present.
Don't worry, I fully expect it to be reversed when Labour get in!
…..out of interest, if it is reversed when Labour get in, does that mean that those who came back to work/carried on working and now breach the £1m LTA cap would be caught out? If so, then assuming the high likelihood of Labour getting in some time soon, these workers would be mad to come back/continue now, wouldn’t they?
I can't imagine it would be applied retrospectively - the LTA has been coming down for years but never applied to those whose pots in the past had been higher but within the previously higher limits.
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Today's "junior" doctors are tomorrow's Consultants, who will be very thankful that there is no LTA and a bigger Annual Allowance.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
Thanks Chancellors.....past & present.
But today's junior doctors won't be here on that money - either because they will make the decision that it isn't worth incurring £100k debt training to become doctors or that it is better for them to emigrate, once qualified, to the likes of Australia where they can earn 50% more. There are 50k junior doctors so that £1bn shared between them equates to an extra £20k per annum. So, let's say 10k return to work but that many leave the country. We've gained nothing bar older doctors who have relatively short working span.
I have no idea how many qualified doctors will want to emigrate, or how many will want to qualify in the first place.
But I do know a hell of a lot about the NHS Pension scheme & the career paths of doctors. I was employed by the BMA's financial services arm back in 2000 and have many clients that are doctors. The issue with the AA & the LTA has been a major problem ever since they were both dramatically reduced by George Osborne & then frozen at those limits by successive Chancellors.
40% intend to leave the NHS once their qualified. That is why the Government have made this desperate move.
Many of those doctors wanting to quit the NHS plan to work as doctors abroad. According to the survey, a third of junior doctors (33%) are planning to work as doctors in another country in the next twelve months, with Australia being the top choice of destination.
I think a lot of that is postering by the BMA to secure a bigger pay rise.
Lots of doctors go overseas to work (usually for a year or 2) and then come back. Not many emigrate- certainly not in the numbers the BMA are talking about.
I secured a mortgage for a client who was in Perth (Oz) for a year. She got her mum to view the property & I got the mortgage for her based on her new contract of employment with an NHS Trust.
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Today's "junior" doctors are tomorrow's Consultants, who will be very thankful that there is no LTA and a bigger Annual Allowance.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
Thanks Chancellors.....past & present.
Don't worry, I fully expect it to be reversed when Labour get in!
…..out of interest, if it is reversed when Labour get in, does that mean that those who came back to work/carried on working and now breach the £1m LTA cap would be caught out? If so, then assuming the high likelihood of Labour getting in some time soon, these workers would be mad to come back/continue now, wouldn’t they?
You'd hope it wasn't retrospective but you never can 100% know/predict. Labour have already come out and said they will reverse it (except for Doctors!). That's why I said it may hasten my retirement as I suspect once drawing they won't change or will freeze it, not so sure if not drawing.
Personally I think it's a bit of a storm in a tea cup the negativity, there's lot of bits around the edges that people forget (or don't know) such as if someone earns north of 150k, they start to lose the allowance down to £10k by about £210k anyway, so anyone on a salary at that level or above and paying in more than £10k is not receiving any tax benefit in and will be hammered on the way out, hence why most don't bother. I've not seen anything yet that says that's changing under the new proposals but may have missed it.
I can’t see this pension change encouraging anyone back into work, but I very much doubt that that was really a consideration anyway. I was lucky to be able walk away after 36 years with my employer and despite the awful performance of pensions/markets in the last 18 months, nothing would drag me back to the hamster’s wheel of office life.
Yes, weird that he capped the tax-free Allowance at 25% of the current LTA - so £268,275.
It seems the unlimited LTA doesn't take effect until the 2024/25 tax year. Next tax year it seems to suggest that any excess tax charges will somply not be payable/collected.
Also, tapering has increased to £260k (from £240k)
I dont think the £10k MPAA cap will hinder it too much. Those who had a problem & have taken pension benefits probably have a sizeable pension anyway. And £10k in pension contributions per tax year isnt too shabby.
Does anyknow know about those with fixed protection at higher levels than the £1.07m. Eg Is it fair to assume that someone with fixed protection at say £1.25m isn't now penalised by this new rule. Am I also right in assuming that it is really only of benefit to those die before they are 75 as pots above LTA then receive a tax surcharge of 25% anyway.
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Today's "junior" doctors are tomorrow's Consultants, who will be very thankful that there is no LTA and a bigger Annual Allowance.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
Thanks Chancellors.....past & present.
Don't worry, I fully expect it to be reversed when Labour get in!
…..out of interest, if it is reversed when Labour get in, does that mean that those who came back to work/carried on working and now breach the £1m LTA cap would be caught out? If so, then assuming the high likelihood of Labour getting in some time soon, these workers would be mad to come back/continue now, wouldn’t they?
You'd hope it wasn't retrospective but you never can 100% know/predict. Labour have already come out and said they will reverse it (except for Doctors!). That's why I said it may hasten my retirement as I suspect once drawing they won't change or will freeze it, not so sure if not drawing.
Personally I think it's a bit of a storm in a tea cup the negativity, there's lot of bits around the edges that people forget (or don't know) such as if someone earns north of 150k, they start to lose the allowance down to £10k by about £210k anyway, so anyone on a salary at that level or above and paying in more than £10k is not receiving any tax benefit in and will be hammered on the way out, hence why most don't bother. I've not seen anything yet that says that's changing under the new proposals but may have missed it.
The £150k start point for tapered relief was increased to a threshold income of £200k and an adjusted income of £240k. This change was announced in the 2020 budget.
I'm not sure how this is affected by the increase to £60k for the annual allowance - currently you lose £1 of the annual allowance for every £2 above the threshold so reducing it from £40k down to £10k if you are £60k above the threshold. Will it now still be £1 lost for every £2 over from £60k down to £10k thereby maximum reduction is at £100k over the threshold?
Firstly, Credit Suisse isn't the "most trusted bank in the world". And if it goes bust then an individual's money is protected up to £85K per individual. How much protection does someone have if a Crypto Exchange goes bust?
Firstly, Credit Suisse isn't the "most trusted bank in the world". And if it goes bust then an individual's money is protected up to £85K per individual. How much protection does someone have if a Crypto Exchange goes bust?
not much, which is why you shouldn't ever keep any decent size on a centralised exchange.
According to the OBR, this policy will only keep 15,000 extra people in work at an annual cost of £1bn so the Treasury is spending more than £66,000 per annum on each of those individuals. One other benefit for those beneficiaries of the relaxation of the rules is that the extra monies going into their pension pot will fall outside IHT if they die before reaching 75.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Today's "junior" doctors are tomorrow's Consultants, who will be very thankful that there is no LTA and a bigger Annual Allowance.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
Thanks Chancellors.....past & present.
Don't worry, I fully expect it to be reversed when Labour get in!
…..out of interest, if it is reversed when Labour get in, does that mean that those who came back to work/carried on working and now breach the £1m LTA cap would be caught out? If so, then assuming the high likelihood of Labour getting in some time soon, these workers would be mad to come back/continue now, wouldn’t they?
You'd hope it wasn't retrospective but you never can 100% know/predict. Labour have already come out and said they will reverse it (except for Doctors!). That's why I said it may hasten my retirement as I suspect once drawing they won't change or will freeze it, not so sure if not drawing.
Personally I think it's a bit of a storm in a tea cup the negativity, there's lot of bits around the edges that people forget (or don't know) such as if someone earns north of 150k, they start to lose the allowance down to £10k by about £210k anyway, so anyone on a salary at that level or above and paying in more than £10k is not receiving any tax benefit in and will be hammered on the way out, hence why most don't bother. I've not seen anything yet that says that's changing under the new proposals but may have missed it.
The £150k start point for tapered relief was increased to a threshold income of £200k and an adjusted income of £240k. This change was announced in the 2020 budget.
I'm not sure how this is affected by the increase to £60k for the annual allowance - currently you lose £1 of the annual allowance for every £2 above the threshold so reducing it from £40k down to £10k if you are £60k above the threshold. Will it now still be £1 lost for every £2 over from £60k down to £10k thereby maximum reduction is at £100k over the threshold?
Adjusted income for tapering increased in yesterday Budget to £260k.
Yes, weird that he capped the tax-free Allowance at 25% of the current LTA - so £268,275.
It seems the unlimited LTA doesn't take effect until the 2024/25 tax year. Next tax year it seems to suggest that any excess tax charges will somply not be payable/collected.
Also, tapering has increased to £260k (from £240k)
I dont think the £10k MPAA cap will hinder it too much. Those who had a problem & have taken pension benefits probably have a sizeable pension anyway. And £10k in pension contributions per tax year isnt too shabby.
Does anyknow know about those with fixed protection at higher levels than the £1.07m. Eg Is it fair to assume that someone with fixed protection at say £1.25m isn't now penalised by this new rule. Am I also right in assuming that it is really only of benefit to those die before they are 75 as pots above LTA then receive a tax surcharge of 25% anyway.
Your fixed protection still stands. So if you have it fixed at £1.5m then the 25% tax-free element will still be at £375k.
I don't know too many people with fixed protection as it limits you somewhat. I have a few clients with Individual Protection, mostly IP16. But their protection is not much off the current LTA - one was at £1.1m another closer to £1.2.
What has irked me today listening to the news/ debates about all if this ( and the BBC seem to be the worst) is that the keep saying that the "tax free allowance has been changed".
Noooooo.
Pensions have always been taxable. All that has been abolished is the upper limit where an excess tax charge kicks in.
The only"tax free" part to a pension is
1) it grows free of capital gains tax. Gordon Brown taxed dividends in his first Budget back in 1997.
2) it's free of Inheritance tax.
3) you can pass the fund onto you dependants tax free if you die before age 75. After 75 it will be taxed based on their notional tax rate
4) you can withdraw a % (for most people its 25%) tax free - the residual fund is taxable. You might be lucky that in retirement your pension income us so low that you aren't taxed on it - but seeing as the Personal Allowance has been frozen at £12500 and the State Pension for most people will be around £10k pa as from April - then even a small amount of pension income will soon be taxed.
If you want to make a German laugh,tell him the annual amount of the UK State Pension. When he’s finished laughing, tell him that the State takes back at least 20% in income tax.
He will internally combust, and after finally recovering will walk away, shaking his head and muttering “Island monkeys”.
I have never understood why you’d tax a State Pension.
If you want to make a German laugh,tell him the annual amount of the UK State Pension. When he’s finished laughing, tell him that the State takes back at least 20% in income tax.
He will internally combust, and after finally recovering will walk away, shaking his head and muttering “Island monkeys”.
I have never understood why you’d tax a State Pension.
I agree - once the state retirement pension is being taken the personal tax allowance should equal the annual state pension income or the prevailing personal allowance whichever is the most (and should not be lost if any personal pension and/or other income takes you above the £100k).
Nobody gets tax relief on their NI contributions!!
The pension changes are described as a tax giveaway but it is more accurately abolishing unwarranted penal taxation that in the long run was bound to reduce HMRC tax revenue.
The excess over the LTA is taxed at 55% if taken in cash and if taken in income bears a 25% tax charge in addition to income tax at 40% in payment. That is nothing more than penal tax designed to restrict pension savings. Tax relief exists to encourage savings but the more we save the more the Treasury perceives it as a loss of tax revenue.
The fact is that pensions tax relief is no big deal. Say you put £1,000 into your pension and as a higher rate tax payer you deny the Government £400 of tax revenue. That £1,000 grows to £3,000 after investment returns are added. You then pay 40% income tax on the £3,000 as it is drawn down plus 40% tax on any additional investment return. (The 55% LTA charge is presumably HMRC’s equivalent to the income tax had it been paid as pension). So the £3,000 pension pot is worth at least £1,650 as far as HMRC is concerned. The tax free lump sum simply makes the situation more fair, rather than the generous giveaway it is portrayed as.
Yes you might pass the funds to the next generation but it will at some stage attract tax.
So why would any restrictions be put on pensions savings at all when they generate significant long term tax revenues out of all proportion to the initial tax relief given to encourage savings.
The only reason is that Governments do not look further ahead than the term of their office and if they can increase tax revenue by restricting todays tax relief bill they will do so regardless of the loss of higher tax revenue many years ahead.
Its my belief that the AA & LTA reductions over the past 6 or 7 years were wasted tax targets for the Treasury as very few people understood them....or even knew what they meant.
It's only really come to the fore because of the serious issues it was causing NHS Doctors and the effects that was having on staff numbers. Also, the way the excess tax on the Annual Allowance is calculated and charged is retrospective - you can't calculate it (for DB schemes) until after the tax year has finished & so you are faced with a tax bill 6-12 months after the event with no recourse to do anything about it. Apart from leaving the scheme !
I do think scrapping the LTA was a bit extreme & it would have been better changing how any excess is charged. Same goes for the LTA. I said on here a few weeks back that there should be 2 regimes for taxing pension excesses - one for DC scheme where you can control the amount going in and (to some extent) the growth and another for DB schemes where you have no control over either.
One final piece. The current LTA is around £1.1m. To reach that you would (in the traditional final salary scheme of an annual pension + 3 times lump sum) need an annual pension on retirement of £47pa. Might seem a lit to most people, and it is. But an NHS Consultant on their top scale (so 20 odd years of Consultant service) would be on around £115kpa. On top of that there would have other pensionable income such as merit awards which can add another £10k. Based on 40 years service that would be an annual pension of £62.5k. and therefore almost £350k over the LTA. (62.5 x20 plus 3x lump sum) and therefore an excess tax charge of c£180k. Thats why it needed to be changed.
Its my belief that the AA & LTA reductions over the past 6 or 7 years were wasted tax targets for the Treasury as very few people understood them....or even knew what they meant.
It's only really come to the fore because of the serious issues it was causing NHS Doctors and the effects that was having on staff numbers. Also, the way the excess tax on the Annual Allowance is calculated and charged is retrospective - you can't calculate it (for DB schemes) until after the tax year has finished & so you are faced with a tax bill 6-12 months after the event with no recourse to do anything about it. Apart from leaving the scheme !
I do think scrapping the LTA was a bit extreme & it would have been better changing how any excess is charged. Same goes for the LTA. I said on here a few weeks back that there should be 2 regimes for taxing pension excesses - one for DC scheme where you can control the amount going in and (to some extent) the growth and another for DB schemes where you have no control over either.
One final piece. The current LTA is around £1.1m. To reach that you would (in the traditional final salary scheme of an annual pension + 3 times lump sum) need an annual pension on retirement of £47pa. Might seem a lit to most people, and it is. But an NHS Consultant on their top scale (so 20 odd years of Consultant service) would be on around £115kpa. On top of that there would have other pensionable income such as merit awards which can add another £10k. Based on 40 years service that would be an annual pension of £62.5k. and therefore almost £350k over the LTA. (62.5 x20 plus 3x lump sum) and therefore an excess tax charge of c£180k. Thats why it needed to be changed.
Completely disagree that scrapping the LTA limit was extreme. It was extreme introducing it in the first place. It was simply an easy target for reducing the annual cost to the Treasury.
There is absolutely no justification for capping final salary pensions where the employer has funded 90% of the cost. There is no tax "leakage" as the employer would have got the same tax relief as an expense whether paid as salary or pension. So what justification is there for taxing the recipient over and above normal income tax. HMRC had to invent something for DB schemes for no other reason than they couldn't be seen as just attacking money purchase schemes because it was convenient. The absurdity is obvious given the LTA valuation and tax payable on a final salary scheme is the same whether the pension is paid from age 55 or 70 and wether or not it has inflation proofing when clearly one pension could be at least twice the value of the other but bearing an identical tax. It is as non-sensical a tax levy as you could dream up
Its my belief that the AA & LTA reductions over the past 6 or 7 years were wasted tax targets for the Treasury as very few people understood them....or even knew what they meant.
It's only really come to the fore because of the serious issues it was causing NHS Doctors and the effects that was having on staff numbers. Also, the way the excess tax on the Annual Allowance is calculated and charged is retrospective - you can't calculate it (for DB schemes) until after the tax year has finished & so you are faced with a tax bill 6-12 months after the event with no recourse to do anything about it. Apart from leaving the scheme !
I do think scrapping the LTA was a bit extreme & it would have been better changing how any excess is charged. Same goes for the LTA. I said on here a few weeks back that there should be 2 regimes for taxing pension excesses - one for DC scheme where you can control the amount going in and (to some extent) the growth and another for DB schemes where you have no control over either.
One final piece. The current LTA is around £1.1m. To reach that you would (in the traditional final salary scheme of an annual pension + 3 times lump sum) need an annual pension on retirement of £47pa. Might seem a lit to most people, and it is. But an NHS Consultant on their top scale (so 20 odd years of Consultant service) would be on around £115kpa. On top of that there would have other pensionable income such as merit awards which can add another £10k. Based on 40 years service that would be an annual pension of £62.5k. and therefore almost £350k over the LTA. (62.5 x20 plus 3x lump sum) and therefore an excess tax charge of c£180k. Thats why it needed to be changed.
Completely disagree that scrapping the LTA limit was extreme. It was extreme introducing it in the first place. It was simply an easy target for reducing the annual cost to the Treasury.
There is absolutely no justification for capping final salary pensions where the employer has funded 90% of the cost. There is no tax "leakage" as the employer would have got the same tax relief as an expense whether paid as salary or pension. So what justification is there for taxing the recipient over and above normal income tax. HMRC had to invent something for DB schemes for no other reason than they couldn't be seen as just attacking money purchase schemes because it was convenient. The absurdity is obvious given the LTA valuation and tax payable on a final salary scheme is the same whether the pension is paid from age 55 or 70 and wether or not it has inflation proofing when clearly one pension could be at least twice the value of the other but bearing an identical tax. It is as non-sensical a tax levy as you could dream up
I don't disagree with you at all. By "extreme" I suppose I meant that advisors like myself have spent years discussing this with clients & going round the houses with what it all means & how (if any) ways are possible to mitigate any impending tax charges.
Now in one fell swoop all my advice & discussions are null & void.
Comments
pleased but surprised the LTA is going completely. Although still capping the tax free at £268k
It seems the unlimited LTA doesn't take effect until the 2024/25 tax year. Next tax year it seems to suggest that any excess tax charges will somply not be payable/collected.
Also, tapering has increased to £260k (from £240k)
I dont think the £10k MPAA cap will hinder it too much. Those who had a problem & have taken pension benefits probably have a sizeable pension anyway. And £10k in pension contributions per tax year isnt too shabby.
I'm sure those junior doctors who are striking because they are being paid £14.09 per hour are ecstatic that the Government can afford to reward their seniors in such a generous way.
Looks like I could be very busy over the next weeks & months catching up with my DR clients who will be mightily relieved about this. My only annoyance is that I have spent the best part of 6 years detailing to them how we could mitigate these tax charges only now to be seen to have wasted my breath.
Thanks Chancellors.....past & present.
Don't worry, I fully expect it to be reversed when Labour get in!
But I do know a hell of a lot about the NHS Pension scheme & the career paths of doctors. I was employed by the BMA's financial services arm back in 2000 and have many clients that are doctors. The issue with the AA & the LTA has been a major problem ever since they were both dramatically reduced by George Osborne & then frozen at those limits by successive Chancellors.
I can't imagine it would be applied retrospectively - the LTA has been coming down for years but never applied to those whose pots in the past had been higher but within the previously higher limits.
Many of those doctors wanting to quit the NHS plan to work as doctors abroad. According to the survey, a third of junior doctors (33%) are planning to work as doctors in another country in the next twelve months, with Australia being the top choice of destination.
https://www.bma.org.uk/bma-media-centre/four-in-ten-junior-doctors-plan-to-leave-the-nhs-as-soon-as-they-can-find-another-job-bma-council-chair-reveals-in-new-years-message-to-the-country
Lots of doctors go overseas to work (usually for a year or 2) and then come back. Not many emigrate- certainly not in the numbers the BMA are talking about.
I secured a mortgage for a client who was in Perth (Oz) for a year. She got her mum to view the property & I got the mortgage for her based on her new contract of employment with an NHS Trust.
Personally I think it's a bit of a storm in a tea cup the negativity, there's lot of bits around the edges that people forget (or don't know) such as if someone earns north of 150k, they start to lose the allowance down to £10k by about £210k anyway, so anyone on a salary at that level or above and paying in more than £10k is not receiving any tax benefit in and will be hammered on the way out, hence why most don't bother. I've not seen anything yet that says that's changing under the new proposals but may have missed it.
Am I also right in assuming that it is really only of benefit to those die before they are 75 as pots above LTA then receive a tax surcharge of 25% anyway.
I'm not sure how this is affected by the increase to £60k for the annual allowance - currently you lose £1 of the annual allowance for every £2 above the threshold so reducing it from £40k down to £10k if you are £60k above the threshold. Will it now still be £1 lost for every £2 over from £60k down to £10k thereby maximum reduction is at £100k over the threshold?
I don't know too many people with fixed protection as it limits you somewhat. I have a few clients with Individual Protection, mostly IP16. But their protection is not much off the current LTA - one was at £1.1m another closer to £1.2.
Noooooo.
Pensions have always been taxable. All that has been abolished is the upper limit where an excess tax charge kicks in.
The only"tax free" part to a pension is
1) it grows free of capital gains tax. Gordon Brown taxed dividends in his first Budget back in 1997.
2) it's free of Inheritance tax.
3) you can pass the fund onto you dependants tax free if you die before age 75. After 75 it will be taxed based on their notional tax rate
4) you can withdraw a % (for most people its 25%) tax free - the residual fund is taxable. You might be lucky that in retirement your pension income us so low that you aren't taxed on it - but seeing as the Personal Allowance has been frozen at £12500 and the State Pension for most people will be around £10k pa as from April - then even a small amount of pension income will soon be taxed.
So Mr BBC .....Pensions are not tax free.
Nobody gets tax relief on their NI contributions!!
The fact is that pensions tax relief is no
big deal. Say you put £1,000 into your pension and as a higher rate tax payer you deny the Government £400 of tax revenue. That £1,000 grows to £3,000 after investment returns are added. You then pay 40% income tax on the £3,000 as it is drawn down plus 40% tax on any additional investment return. (The 55% LTA charge is presumably HMRC’s equivalent to the income tax had it been paid as pension). So the £3,000 pension pot is worth at least £1,650 as far as HMRC is concerned. The tax free lump sum simply makes the situation more fair, rather than the generous giveaway it is portrayed as.
So why would any restrictions be put on pensions savings at all when they generate significant long term tax revenues out of all proportion to the initial tax relief given to encourage savings.
It's only really come to the fore because of the serious issues it was causing NHS Doctors and the effects that was having on staff numbers. Also, the way the excess tax on the Annual Allowance is calculated and charged is retrospective - you can't calculate it (for DB schemes) until after the tax year has finished & so you are faced with a tax bill 6-12 months after the event with no recourse to do anything about it. Apart from leaving the scheme !
I do think scrapping the LTA was a bit extreme & it would have been better changing how any excess is charged. Same goes for the LTA. I said on here a few weeks back that there should be 2 regimes for taxing pension excesses - one for DC scheme where you can control the amount going in and (to some extent) the growth and another for DB schemes where you have no control over either.
One final piece. The current LTA is around £1.1m. To reach that you would (in the traditional final salary scheme of an annual pension + 3 times lump sum) need an annual pension on retirement of £47pa. Might seem a lit to most people, and it is. But an NHS Consultant on their top scale (so 20 odd years of Consultant service) would be on around £115kpa. On top of that there would have other pensionable income such as merit awards which can add another £10k. Based on 40 years service that would be an annual pension of £62.5k. and therefore almost £350k over the LTA. (62.5 x20 plus 3x lump sum) and therefore an excess tax charge of c£180k. Thats why it needed to be changed.
There is absolutely no justification for capping final salary pensions where the employer has funded 90% of the cost. There is no tax "leakage" as the employer would have got the same tax relief as an expense whether paid as salary or pension. So what justification is there for taxing the recipient over and above normal income tax. HMRC had to invent something for DB schemes for no other reason than they couldn't be seen as just attacking money purchase schemes because it was convenient. The absurdity is obvious given the LTA valuation and tax payable on a final salary scheme is the same whether the pension is paid from age 55 or 70 and wether or not it has inflation proofing when clearly one pension could be at least twice the value of the other but bearing an identical tax. It is as non-sensical a tax levy as you could dream up
Now in one fell swoop all my advice & discussions are null & void.