Annual Allowance The government will restrict the benefits of pensions tax relief for those with incomes (including their own and employer’s pension contributions) above £150,000 by tapering away their Annual Allowance to a minimum of £10,000. The Annual Allowance, which is set at £40,000, is the limit on the amount of tax relieved pension saving that can be made by an individual or their employer each year. This policy will come into effect from April 2016.
For every £2 of adjusted income over £150,000, an individual’s Annual Allowance will be reduced by £1, down to a minimum of £10,000.
To ensure this measure is focussed on the higher and additional rate tax payers who currently gain the most benefit from pensions tax relief, those with income (excluding pension contributions) below a £110,000 threshold will not be subject to a Tapered Annual Allowance.
Only 1% of taxpayers exceed this threshold and save into pensions, and even fewer will actually be affected by this measure.
Pensions tax relief consultation The government is consulting on whether there is a case for reforming pensions tax relief to strengthen incentives to save, offering savers greater simplicity and transparency, or whether it would be best to keep the current system. The consultation asks for views on the various options that have been suggested for how the system could be reformed. These range from a fundamental reform of the system (for example moving to a system which is “Taxed-Exempt-Exempt” like ISAs and providing a government top-up on pension contributions) to less radical changes (such as retaining the current system and altering the lifetime and annual allowances), as well as options in between. CIPP comment The Policy Team are really excited about this published paper. We require time to properly digest its content, but members should expect a survey. Many years ago, Karen Thomson suggested that it would be much fairer to remove tax relief on pension contributions and let pension income be tax free. It is fair to say this was when the Personal Allowance was extremely low, but with the Allowance expected to rise to £12,500 in the future, the CIPP has to ask how many people receive a pension above £12,500? But is this really to help pensioners or is it a new revenue stream? The CIPP, as always, remains apolitical but will be interested in your thoughts as the Chancellor is open to radical reforms. This kind of reform would obviously have an impact on salary sacrifice and might just be the end of the schemes altogether. If only he would be more radical and remove the assessment criteria for Automatic Enrolment and just say everyone is in unless they opt-out.
Vehicle Excise Duty The road tax system will be revised to make it fairer and sustainable. From 2017, there will be a flat rate of £140 for most cars, except in the first year when tax will remain linked to the CO2 emissions that cars produce. Electric cars won’t pay any road tax at all and the most expensive cars will pay more.
Existing cars will not be affected – no one will pay more for a car that they already own. The money brought in from road tax in England will be spent on England’s roads from 2020.
The government will also extend the deadline for the first MOT of new cars and motorcycles from 3 years to 4 years.
CIPP comment The Policy Team will need to look at this in more detail as with some of the reliefs for new cars going, this will have an impact on company cars. Good news that might help is the MOT requirement for new cars; will this influence how often companies replace their cars, which in turn impacts the motor industry? Time will tell.
CIPP Policy News Journal
25/04/2016, Page 168 of 453
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