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In last week’s budget, the Chancellor has introduced a range of measures to target tax avoidance by individuals in receipt of high income. We await detailed rules on how this will work in practice and what reliefs will it cover.
However, he has also reaffirmed the importance of pension savings by not making any changes to the tax relief at basic; higher; and additional rate on these schemes. So an individual would be entitled to their top marginal tax rate relief of up to 50% for the year 2012-2013 and 45% for the year 2013-2014.
In particular:
- When basic-rate taxpayers contribute £8,000 to their pension, the government will automatically top it up to £10,000
- Higher-rate taxpayers benefit even more, as they can reclaim up to a further £2,000 through their tax return or their pay as you earn notice of coding. This means a £10,000 pension investment could only cost £6,000
- Additional rate taxpayers benefit can reclaim up to a further £3,000 (2012-2013) and £2,500 (2013-2014)
- It should be noted that you can only put aside up to 100% of your salary. The annual allowance for full tax relief on your pension contributions is £50,000
- The Chancellor will introduce an overall cap on income tax reliefs from 6 April 2013 for individuals claiming more than £50,000 in reliefs including pension saving
