TAX NEWS - June 2010

UK Tax: Cameron faces £200k bill under tax relief changes

David Cameron would face a £200,000 tax bill this year if his pension was subject to the same rules as the private sector, Hymans Robertson says.

And the consultant estimated this would increase to about £300,000 if current tax relief proposals come into force after April next year.

Hymans Robertson explained if the prime minister's entire annuity was subject to the current anti-forestalling rule Cameron (pictured) would be taxed on this increase in pension accrual over and above his "normal" pension accrual - i.e. his pension as an MP.

It said because he is entitled to a pension of 50% of his ministerial salary immediately, this increase in accrual is 50% x £132,923 - his ministerial pay - which comes to £66,462.

During the anti-forestalling period, the factor used for valuing this increase is 10 and he pays tax at 30%. So, the tax he would pay is: £66,462 x 10 x 30% = £199,389.

Hymans Robertson partner Chris Noon said: "A £200,000 tax bill sounds extreme, but unfortunately it reflects the reality for many senior employees in the private sector and demonstrates how onerous these provisions are."

Furthermore, Hymans Robertson said anti-avoidance legislation means there are minimal viable alternatives for saving for retirement for high earners

Noon added: "Due to the wide-ranging scope of anti-avoidance legislation, there are very few sensible alternatives to pensions for high earners - the government probably doesn't quite realise the impact this is having.

"The intention is to take 50% tax from high earners, but people could face an overall tax rate of as much as 80% on their pension. And given this will hit senior employees most it could influence their attitudes to pensions across the whole workforce."

As part of tomorrow's Budget, Hymans Robertson called for more clarity and equity in the structure of the post 2011 regime and the anti-avoidance provisions.

Noon said: "If the coalition was serious about creating equity in pensions tax-relief, it would limit relief to the basic-rate (20%) for everyone but, at the same, only tax pension in receipt at basic-rate."