As you will be aware the Chancellor, Alistair Darling, published his Pre-Budget Report on the9th December 2009. Below you will find a summary of the main announcements.
Pensions Tax Relief
As previously announced in the April 2009 Budget, individuals on incomes above £150,000 will have tax relief on pensions restricted from 2011. The relief will taper on income between £150,000 and £180,000 - eventually restricting relief to the basic rate (20%).
For this purpose income will now include payments made by employers, so that anyone with income below £130,000 will have any employer contributions excluded from the restriction.
The restriction of relief will normally be administered via the self-assessment process - rather than via the pension provider. Where the charge is particularly large, individuals will be able to elect to have their pension scheme pay the charge as a deduction from their pension fund.
This will apply to defined contribution and defined benefits schemes.
Because of this change the anti-forestalling measures introduced in April 2009 will be extended to cover anyone with an income of above £130,000 from the, 9th December 2009.
Personal Accounts
The Chancellor has said very little about personal accounts except that he is committed to private pension's reforms with a timetable which has auto enrolment starting in October 2012. For larger firms the timetable appears remains unchanged. Start ups and small firms will be able to start auto-enrolling later than planned - after October 2015. The phasing of minimum employee contribution levels will now be 3% from October 2016 and 4% from October 2017. Employer contributions will be increased to 2% from October 2016 and 3% from October 2017. This delays the timetable to reach steady state by one year to 2017.
Public Sector Pensions
The Chancellor has announced reforms to the Teachers, Local Government, NHS and Civil Service pension schemes which will cap the contribution to pensions made by employers, thereby limiting the liability of the taxpayer as pensions become more valuable. Cost increases below the cap will be shared equally between employers and employees, and those above the cap met solely by employees. In addition, as part of cap and share, the Government will expect those earning the highest salaries to pay a greater contribution towards their pension. These reforms will save an estimated £1 billion a year from 2012-13, and at least twice this amount over the long-term.
Other measures
- Income Tax bands have been frozen for 2010/11 due to negative RPI. Also, the higher rate band frozen for 2011/12.
- National Insurance Contributions have been increased by a further 0.5% from April 2011 although there will be a higher starting point of £20,000.
- Despite a negative RPI, the Basic State Pension will increase by 2.5%.
- Inheritance tax 0% band has been frozen at £325,000.
- Further measures to curb off-shore tax evasion.
- A new Financial and Professional Services Advisory Group to replace the High Level group.
- £20m will be set aside for the launch of a new Government sponsored Money Guidance Service with a long term aim of increasing consumer understanding of financial matters.
- A temporary bank payroll tax of 50% will apply to discretionary bonuses above £25,000 awarded in the period from the Pre-Budget Report to 5 April 2010. This tax only applies to banks and building societies, financial companies that are members of bank and building society groups and UK branches of foreign banking groups. It will not apply to insurers or non-banking group asset managers. Importantly the bank will be liable for this payment not the employee.
Important information
The above is based on our understanding as at December 2009 of the current taxation, legislation and HM Revenue & Customs practice, all of which are liable to change without notice. The impact of any taxation (and any tax reliefs) depends on individual circumstances.