2020 Budget: Another sigh of relief for tax relief
In our latest news piece, Morgan Lloyd Technical Director, John Dowding, adds commentary to the recent 2020 Budget and what the future holds for pensions.
Notwithstanding the coronavirus crisis, it was a most un-Conservative type of budget this time round, particularly in view of the uncharacteristic spending and borrowing commitments.
It was therefore all the more surprising that once again pension tax relief escapes unchanged, particularly when the government has nearly a full term to recover from any political fallout.
It may be wishful thinking, but Rishi Sunak may prove to be the first Chancellor during the (nearly) 10 years of Tory tenure that recognizes the universal benefit of tax relief on pension contributions and has no intention with tinkering with it at all. However, with the committed spending program I won’t be holding my breath!
So, all quiet of the pension front. The only change of note was the attempt to remedy the cumbersome tapering rules that has so publicly affected doctors and other high earning NHS officials.
Under current rules all individuals can enjoy a tax relievable contribution of £40,000pa unless they have substantial earnings. For those with adjusted income over £150,000 the annual allowance reduces by £1 for every £2 of earnings down to a minimum of £10,000pa. New rules from April will increase the adjusted income to £240,000 and reduce the minimum annual allowance to £4,000pa. This is an improvement for a lot of individuals, particularly in the medical profession, but is does remain an unnecessarily cumbersome calculation for the (albeit reduced) numbers of very high earners.
These reforms will cost £180m in the first year.
Finally, as already announced, the lifetime allowance will increase in line with CPI for 2020-21, rising to £1,073m. This means that all individuals can benefit from a pension fund up to this limit without getting a tax charge.
The information above is based on our understanding of the legislation applicable to UK Registered Pension Schemes, and HM Revenue & Customs rules. It is provided as a summary only and should not be taken as advice - Morgan Lloyd SIPP Services Ltd and Morgan Lloyd Administration Ltd are not authorised to give financial advice and will not be responsible for any decision or action taken as a result of relying on this information. If you are a retail client you should seek financial advice from a financial adviser who is authorised by the Financial Conduct Authority and/or seek guidance from the Government’s Pension Wise service.