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Osborne’s plans that may see workers lose out on tens of thousands of pounds
George Osborne is trying to save billions by dramatically cutting the amount of tax relief the Government offers or even scrapping it altogether; causing middle class savers to lose up to a third of their pension pots.
Workers currently earning more than £42,385 receive a tax-free boost from the government of £2 for every £3 they save into a pension; typically giving them around 42% more back than they invested when they retire, once income tax paid on withdrawing pensions is taken into account.
Analysts have warned that potential changes would hit middle income workers forcing them miss out on tens of thousands of pounds and could have a ‘disastrous effect’ on whether people can afford retirement.
According to pension provider Fidelity; a 40-year-old earning around £50,000 a year stands to miss out on up to £175,000 by the age of 65 if Mr Osborne scraps the tax relief perk altogether.
Other options that are currently being considered would see the same worker losing out on between £44,000 and £110,000 by the time they retire.
It is predicted that the Chancellor will change the tax relief rates of 20% for basic rate taxpayers and 40% for higher-rate tax payers to a flat level of either 33, 25 or 20%.
Currently higher rate taxpayers only have to invest £60 to get £100 in their pension pot. But if tax relief is dropped to 33% they will receive just £90 for the same investment. This falls to £80 if it is cut to 25%, and £75 if slashed to 20%
According to ‘This is Money’ the Chancellor may approve another proposal under consideration which will drop the tax relief altogether and treat pensions like ISAs by allowing them to be withdrawn tax-free. But this would mean most people would not make any money from saving into a pension – so fewer workers would be encouraged to put money away for retirement.
Alan Higham, of PensionsChamp.com commented; “It is a big stealth tax which will raise a lot of money from people who won’t always realise what is being done to them, people don’t look at their pensions in the same way they do their bank accounts … It means they are so easy [for the Government] to raid by reductions.”
Will you be affected?
C24 will have the same effect as it magically increases your income by the amount of mortgage interest you are charged
Yes you are allowed a 20% tax credit against that additional mortgage interest ‘income’!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!??
But you may still be HRT and will lose tax relief
These and many others are the supposed unintentional consequences of C24!!??
It really doesn’t pay to be a sole trader LL unless you can keep your total income to less than the HRT threshold
The alternative is to escape the iniquitous C24 by incorporating
A ploy that for most LL is unaffordable
Therefore sole trader LL need to reduce their income
Selling up is one way of doing this or reducing debt
Remember if IR increase so does your C24 income!!!
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