Brexit vote reignites debate over cuts to pensions tax relief

Added 26th July 2016

The UK’s decision to quit the European Union could lead to a raid on pensions tax relief, experts in the industry have warned.

Brexit vote reignites debate over cuts to pensions tax relief

It comes in the wake of the EU referendum in June which saw British prime minister David Cameron replaced by Theresa May following weeks of economic and political turmoil.

Former foreign secretary Philip Hammond has been appointed as chancellor of the exchequer while UK pensions minister Ros Altmann stepped down after calling on the government to introduce a flat rate for pension tax relief – a move that former chancellor George Osborne was set to introduce in the budget earlier this year.

Well-known for favouring pension reform, Osborne brought in freedoms last April giving people unrestricted access to their savings and removing the need to buy an annuity.

However, it remains unclear which way his successor will turn.

Lifetime Isa

Despite calls from Altman to scrap the Lifetime Isa - from next April anyone under 40 can save £4,000 ($5,251, €4,784) a year and receive a 25% government bonus - Royal London’s director of policy Steven Webb, who served as the UK’s pensions minister between 2010 and 2015, predicts the product will not only be launched as planned but may “evolve it into a full-blown pensions Isa”.

"The Treasury will be tempted to raid pensions tax relief for short-term cash."

Speaking to International Adviser, he said the Conservative government is unlikely to introduce a flat rate relief over fears of alienating older voters but instead may opt for further reductions to the annual or lifetime allowance – which has already been slashed twice in recent years, going from £1.8m to £1m.

“I think the most likely scenario is that if there is a big hole in the public finances because of a short-term economic downturn, the Treasury will be tempted to raid pensions tax relief for short-term cash.  

“This could be via a further reduction in annual or lifetime limits or perhaps the introduction of National Insurance Contributions on the money firms put into pensions,” he said.

Jonathan Greer, pension expert at Old Mutual Wealth, has urged the new chancellor to consider whether extending the Lifetime Isa is “the right course of action”.

“Further moves towards a pensions Isa will introduce unwelcome complexity for existing savers, introducing the political risk of savings being taxed again when taken,” he said.

Neil Chadwick, technical manager at RL360⁰, said it is “far too early to start making predictions as to what the immediate tax implications could be” but called on Hammond to “simplify the tax system as it is far too complicated at the moment”.

Non-dom tax reforms

Another concern is whether Hammond will put the kibosh on Osborne’s long-awaited tax reforms governing non-UK domiciles.

Due to come into force in April next year, the rules mean that non-UK domiciles who have resided in the country for more than 15 of the past 20 tax years will now automatically be deemed UK-domiciled.

George Bull, a senior tax partner at RSM, has disputed claims made by Old Mutual Wealth’s financial planning expert Rachel Griffin that there may be a possible delay, saying that it’s “unlikely the changes will be scrapped”.

Director at international IFA firm Strabens Hall, John Halley agrees, telling IA he believes the non-dom reforms will go ahead, while Phil Knop, group director of Malta-based Boston Multifamily Office said any delay would be a “temporary reprieve”.


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About Author

Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.



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