High earners expected to escape cut in tax relief

THE Chancellor is expected to resist the temptation to cut tax relief for high earners despite rumours of an announcement in Tuesday’s Autumn Statement.

Several pension firms have warned higher-rate taxpayers that George Osborne could reduce the level at which they receive tax relief. The threat isn’t new and similar warnings have been issued before, with providers accused of scaremongering in a bid to boost contributions.

The Treasury has dismissed the speculation, but with the Chancellor under pressure to make savings, some experts believe tax relief is in his sights. Limiting tax relief to 20 per cent would save the government an estimated £7 billion, provided contribution levels remain the same.

Tax relief is available on pension contributions at an individual’s highest rate, meaning 40 and 50 per cent rate taxpayers can contribute £50,000 to a pension (the maximum annual contribution) at an effective cost of just £30,000 and £25,000 respectively.

But John Lawson, head of pensions policy at Standard Life, believes a change is unlikely. “The annual amount you can put into your pension was already cut back by over 80 per cent in April this year and the lifetime allowance is being cut back in April 2012. So, having made some large cuts to pension tax relief recently, and mindful of the effect on voters, I doubt that higher-rate tax relief will be cut further.”