Jeremy Hunt’s ‘knee-jerk’ reaction means more Britons will be hit by 55% ‘brutal’ tax

Jeremy Hunt’s ‘knee-jerk’ reaction means more Britons will be hit by 55% ‘brutal’ tax

Recently, the Chancellor announced a raft of tax allowances would be frozen for another two years – up until 2028. This includes the Pension Lifetime Allowance (LTA), which puts a limit on how much a person can save into their pension while benefitting from tax relief across their lifetime.

At present, the LTA is £1,073,100, which appears high, however, experts have argued many people will inadvertently find themselves dragged over the limit, particularly as it is frozen.

If the limit is breached, Britons could find themselves subject to a 55 percent tax bill, which many people will be keen to avoid.

However, higher numbers of people will be subject to this tax as inflation remains high, and due to investment growth over time. 

Rona Train, partner at Hymans Robertson LLP, told “Freezing the Pensions Lifetime Allowance until 2026 in last year’s Budget was simply a kneejerk reaction by the Chancellor for short term financial gain.

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Ms Train also issued a warning about the money purchase annual allowance, which she argued is of “much more concern”.

If a person starts to take money from their pension, the amount they can contribute while still getting tax relief might reduce.

For most people, the total amount that can be contributed to a pension each tax year which they will receive tax relief on is £40,000. 

However, if the MPAA is triggered, this reduces to £4,000, in what is effectively a 90 percent savings penalty.

Ms Train added: “We’re already starting to find people who have accessed part of their pension savings and continued to work being hit with big tax bills as they were not fully aware of the restriction. 

“The MPAA was originally put in place to stop people taking money out of their pension and then re-cycling it back in with tax relief. 

“But instead, at the moment anyway, it’s often hitting people who are taking money out of their pension to pay bills. 

“As it stands, it’s ticking timebomb in tax for many.”

An HM Treasury spokesperson previously told “The lifetime allowance was frozen to ensure the sustainability of the public finances and the current threshold means savers can put over £1million into their pension completely tax-free.”

Published at Sat, 04 Feb 2023 05:01:00 +0000