TAX NEWS - June 2010

UK Tax: SIPP investors act to beat the Budget axe

It's been a busy weekend for Vantage SIPP investors who've been topping up their SIPPs ahead of tomorrow's Budget. No doubt many of them are concerned the Chancellor will take away higher rate tax relief on pension contributions tomorrow, so they're taking no chances and making this year's SIPP contribution before he stands up to speak.

Currently for each £1,000 you pay into a pension the government adds £250 in basic rate tax relief. But higher rate taxpayers can also claim up to a further £250 back from the government in higher rate tax relief. It has been suggested this extra benefit enjoyed by higher rate taxpayers will have no place in the "age of austerity" which George Osborne will start to set out tomorrow.

Abolishing higher rate tax relief on pension contributions must be pretty tempting for a Chancellor who is trying to make huge budgetary savings. It's estimated that eliminating this generous tax give-away would save the Treasury around £5 billion a year. Such a move is something the Liberal Democrats have been pushing for; getting rid of higher rate tax relief was one of their flagship policies prior to the election.

Despite all this, it's still very difficult to predict whether higher rate tax relief will be with us after tomorrow or not. Ultimately no-one outside of the government knows for sure. But many SIPP investors are playing it safe by topping up before the Chancellor has a chance to wield his axe. If you're thinking about making a SIPP contribution this year you still have time to do it before tomorrow's Budget.

The exact benefit of any tax reliefs will depend on your personal circumstances and are of course subject to change by the government.

You can set up a new SIPP or top up an existing one with a debit card, either online or over the phone. Before you do so, please make sure you have read the terms and conditions and key features, and remember money contributed to a pension can only be used to fund your retirement.