September 29, 2020

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The Chancellor could introduce a limit to the tax-free lump sums taken from pensions, cut...

The Chancellor could introduce a limit to the tax-free lump sums taken from pensions, cut the pension annual allowance, and tax pensions when left to descendants to raise cash in the Autumn Budget.

Making changes to pensions are one of the ways Chancellor Rishi Sunak could look at raising cash for the debt-laden UK economy, according to NFU Mutual.

Sean McCann, Chartered Financial Planner at the advisory arm of NFU Mutual, also said that Capital Gains Tax could be added to home sales.

Exemption from Capital Gains Tax (CGT) on main homes cost the UK Government £26.7bn in 2018/19, according to estimates from the National Audit Office.

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It has been estimated that a 10% CGT levy on profits made on sale of main homes would generate £421bn over the next 25 years.

Another way the Chancellor could raise cash is by introducing a £100,000 limit to the tax-free lump sums taken from pensions.

Mr McCann said: “Pensions are one of the most tax efficient ways to save for retirement – you get tax relief on the way in, virtually tax-free growth, and the opportunity to take out up to 25% as a tax-free lump sum. 

“Capping the amount that can be taken tax-free by an individual across all their pensions at £100,000 would raise significant sums for the Government and would only impact those with Pension savings above £400,000.”

NFU Mutual also said that the Chancellor could look to tax pensions when left to descendants

Mr McCann said: “In most cases money left in a pension fund on death escapes inheritance tax. Those that can afford to support themselves by other means in retirement, often leave their pensions untouched for this reason.

“However, Mr Sunak could look at raising cash by including unspent pension pots in the inheritance tax net. There is a huge amount of wealth in pensions, and making them liable for inheritance tax could claw back billions for the treasury.”

 On another raid on pensions, NFU Mutual also suggested that the Chancellor could cut the pension annual allowance from £40,000 to £20,000.

The total cost of pension tax relief in 2018/19 was £37.8bn, according to estimates from the National Audit Office.

Mr McCann said: “Pension tax relief is ripe for reform but introducing a flat rate, as has previously been suggested, would be complex. 

“Instead, the Chancellor could halve the annual pension allowance from £40,000 to £20,000, while scrapping controversial ‘tapering rules’ for higher earners that limit some of them to paying £4,000.

“This would simplify the rules and align with the current £20,000 ISA allowance.

“Crucially for Mr Sunak, it would mean a cut to the pension tax relief paid to a large number of higher-rate tax payers who are able to put more than £20,000 into their pension each year.”

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