Already the new Chancellor, Phillip Hammond, has scrapped two of Osborne’s policies.
With the Autumn Statement not far away (23rd November), Hammond may use this opportunity to axe more of his predecessor’s policies. But will he listen to the industry which calls for ‘no change’, especially with regards to pensions?
We take a look at three policies which could also be facing the exit.
Osborne reduced the Lifetime Allowance from £1.8 million to £1 million by 6th April 2016. This means instead of hitting the wealthy, it increasingly impacted on the middle-class.
In addition, the LA system groups all types of pension schemes under one roof. Therefore it was unfair for defined contribution savers who are squeezed harder than those saving in defined benefit schemes.
Since this is a method of restricting the level of benefit payable on public sector pension schemes, this policy may be here to stay despite a welcoming nod to cut.
The Tapered Annual Allowance
Osborne’s Tapered Annual Allowance – a rule to reduce tax-free pension contributions for higher earners – is extremely complex
Since April this year, people earning more than £150,000 no longer qualify for an annual allowance of £40,000. Instead the annual allowance is reduced by £1 for every £2 excess income. David Smith, director at Tilney Planning, said it would be “much plainer and fairer to simply scrap this” and suggested either a £20,000 per annum could work, or keep the £40,000 allowance but implement a flat-rate tax relief for all.
Main Residence Nil Rate Band
The main residence nil rate band, which was announced in Osborne’s summer budget, will create a new tax-free band worth £175,000 per person on a family home.
But this allowance can be transferred between married couples, making it worth a maximum of £350,000, and with the existing Inheritance Tax threshold at £325,000 on top (£650,000 for couples) the rule is subjected to abuse.
For example, people with large houses but with little other assets will benefit compared to those who live in modest houses with greater savings.
A call to an increase to the basic nil-rate band as an alternative policy has been made.
J Edward Sellars has offered financial advice since 1975.
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