In the latest pension complication move, the government is considering linking pension contribution caps to age in a bid to gain more tax revenue.
It’s clear Labour sees high-earners contributing to pensions as fair game for grabbing more cash to pay for spiralling government borrowing to pay for bailing out the banks.
Hot on the heels of the 50% super income tax rate and pension anti-tax avoidance legislation comes the latest move sees about 250,000 people aged 50 and over facing extra tax charges related to the annual allowance.
Currently, the amount accrued to a pension in any given year is multiplied by 10 to see if contributions exceed the annual allowance, which stands at £245,000 with tax due on any excess.
Government wants to raise £3 billion from pension savers
Under some unenacted small print in last year’s budget, the government is looking at linking this multiple to age, with those nearer retirement subject to a higher multiple and liable to more tax. The government is hoping to raise an extra £3 billion in tax from the proposal – which is out for consultation.
Despite introducing tax simplification legislation in April 2006, the government has systematically added new rules and regulations mostly to close loopholes and raise extra taxes from high earners gaining 40% tax relief on pension contributions.
The government sees high earners as more willing to contribute to pensions to gain extra tax relief than to keep the cash taxed as income.
Another tax blow for medical professionals
Those particularly in the firing line are senior medical professionals nearing retirement, who generally top up their pensions with extra cash, as they get closer to 65 years old.
Because they are in public funded schemes, they do not benefit from independent financial advice like other pension savers with their own personal retirement strategies.
Medical professionals are also the targets of current HMRC tax avoidance action.
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