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TAX NEWS - 2010

UK Tax: Industry welcomes Budget higher rate tax relief rethink

The Coalition Government's proposals for a rethink on the taxation of higher earners have been welcomed across the pensions industry.

Chancellor George Osborne announced in last month's Emergency Budget that the Government will repeal the legislation set out in the Finance Act 2010 to introduce the high income excess relief charge. Instead, at least an equivalent amount of tax revenue will be raised through an alternative approach, probably involving a significantly reduced annual allowance.

The Government's provisional analysis suggests that the annual allowance would need to be reduced from £255,000 to £30,000-£45,000 to generate an equivalent amount of tax.

The Government is now seeking views on a range of complexities in the system, including how pension accrual in defined benefit schemes should be valued and options to protect certain individuals from the restriction, including basic rate taxpayers and 'hard cases' where there is a one-off spike in pension accrual such as a promotional salary rise or early retirement.

It will also reconsider whether individuals should have flexibility over paying the charge and how compliance and delivery will work in practice.

Nigel Roth, senior partner at Mercer, says: "We welcome the Government's attempt to simplify the pensions tax proposals. It's encouraging to see them present an alternative to the previous administration's approach to high earners' tax relief on pension saving. However, if the new measures are to be implemented by Spring 2011, as is suggested, after consultation, then the timing is very tight. Any review should take place as quickly as possible. The chopping and changing around this policy is disrupting company efforts to provide long term saving for their employees.

"Companies have already committed resources and effort to the frequent regulatory changes in this area so we would like to see more clarity and certainty in the future. We recognise that there is much more detail that remains to be resolved.

"We also note that EFRBS, which many firms were recommending in response to the changes made by the previous government, may not survive."

A spokesman for Punter Southall says: "It is rare for the pensions industry to be so unanimously critical as it was of the Government's proposals to restrict pensions tax relief for high earners.

"This Budget will therefore come as a welcome relief to many of those involved in UK pension schemes.

"Whilst pensions tax relief will still be restricted for some individuals, the Chancellor has announced a change in the mechanism for achieving this, saying that he has listened to the concerns of employers and the pensions industry about the complexity of the 'high income excess relief charge' proposed by the previous Government."
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