The 2016 Budget is set to take place on 16 March.
The biggest change expected this year will be to pensions. We will not know for sure what changes will be made until the day itself, but there are several options being discussed in the run up.
- Currently when you start claiming your pension you can withdraw 25% tax free. This could be abolished, so all of your pension pot is taxable.
- A reduction in the annual allowance. The amount you can contribute to a pension scheme each year is currently £40,000. It is predicted that this could be cut to £25,000.
- The whole pension system as it stands could be changed to a new ISA style system. You would not get tax relief putting your money into the pension but there will be no tax on the withdrawals. This would be very complex as the current pension schemes would be closed to new money but will still need to run alongside the new scheme. It also removes the incentive to save so it seems unlikely this will be implemented.
- A new flat rate tax relief on contributions. Currently you receive tax relief at the rate you are taxed, ie basic rate tax payers at 20%, higher at 40%. This could be changed so a flat tax relief is given to all. This would benefit the lower paid and reduce the relief on those with higher earnings. The current thoughts are that the relief would be at 25% but with a hope for 33%.
- Employees can currently pay their pension through salary sacrifice. This gives the employee tax relief and the employers save on Employer National Insurance. This may be abolished or restricted in future.
- The lifetime allowance (the total you can contribute to pensions through your life) has already been reduced to £1 million from April 2016. It is expected that this will be dropped even further in future years to £750,000.
Which of these changes will be made is anyone’s guess; it may even be something completely different! The only thing we can be sure of is that there will be a change.