4th May, 2021, Claire Melton
In the Chancellor’s spring Budget, we expected a raft of tax changes; these weren’t made. Instead, the Chancellor concentrated on encouraging investment and spending to help the economy recover from the impact of the coronavirus pandemic.
However, we do expect these tax changes to be made at some point in the future. In this article and video, I explain to you what areas are being considered for change, and how you can respond to that to maximise your allowances.
Relief for Pension Contributions
This was an area that we thought would be changed but wasn’t. The lifetime allowance rate has been frozen and, currently, all pension contributions are tax free, subject to an income threshold and annual allowance that is now 40,000 pounds.
Pension contributions can be made by your company or individually, they also save tax at the Corporation Tax Rate, Basic Rate, Higher Rate and Additional Rate, which is 45 per cent.
Pension contributions are flexible and can be made monthly or as a one-off lump sum. You can carry forward unused Annual Allowance for up to three years and use towards a lump sum pension payment. This can be very useful if you have one-off additional profits or if you sell an asset at a large gain. You can reinvest into a pension to increase your basic rate band or tax allowance.
The Chancellor may make changes to these tax breaks to create more of a level playing field for those with less wealth.
These changes could be reducing the Annual Allowance from 40,000 pounds to 10,000 pounds, removing the ability to carry forward allowances, and the rate of tax relief could be restricted.
I think these changes are likely but only when the economy has recovered sufficiently and will also be influenced by the government’s 10-year strategy for tax reform.
As a specialist in these areas, I would be happy to help you navigate these tax rules and potential changes.
Please get in touch.
Related pages: Spring Budget 2021
Related Articles: Looking forward financially with Claire Melton
Profile: Claire Melton FCCA TEP