Personal taxes and pension relief

A £1,000 increase in the personal allowance bringing it to £7,475 is welcome but significantly less than the £10,000 predicted. This will benefit 880,000 workers who will no longer need to pay tax and will by default make basic rate tax payers £170 better off. However legislation is to be introduced to ensure that higher rate tax payers do not benefit from the personal allowance increase. This will be done by lowering the higher rate threshold.

Any increase in the disposable income however may well be soaked up by the VAT rise in January 2011, the freeze on child benefit and reduction in the threshold for family tax credits.

Following a planned consultation process, the incomprehensively complex legislation to restrict the pension relief given to high earners (£150,000 plus) is likely to be scrapped in favour of reducing the annual allowance for pension relief to between £30,000 and £40,000. A relatively simple solution which will provide relief to advisors faced with explaining ‘special annual allowance charges’ to clients.