Why good tax and pensions planning is for 5th December, not just 5th April
Roll on the 5th of December and also the 11th December! Christmas comes early for pro-active tax advisors and their clients.
The real excitement for tax advisors doesn’t take place on Budget day any more, it occurs in the Autumn Statement. By Budget Day we’ll already have been given a fairly clear idea what HMRC have in store for us in 2013/14 and probably beyond.
In the new era of Government use of “consultation based” tax legislation the tax provisions which HMRC wants to enact in Finance Act 2013, or maybe even Finance Act 2014, are now announced each year in December, giving three months for feedback if the proposals need amended (or even in some cases dropped in another sprightly U-turn).
However, what this also means is that there are measures which we have already had some indication may be enacted in Finance Act 2013/14 and so tax advisors are already highlighting actions to clients who may want to take steps to pre-empt any changes announced in the Autumn Statement.
The greatest amount of chatter in the media and the tax advisory community is in relation to pensions and a proposal to reduce the amount of annual contributions a person can expect to be given tax relief. At present an annual allowance for tax relief per person of £50,000 per year is given for pension contributions and the suggestion is that a reduction in this allowance to either £40,000 or £30,000 would bring in substantial amounts of additional tax revenues.
This measure would be unpopular amongst higher paid individuals who are seeking to prepare for their retirement. With current annuity rates, saving £50,000 a year for 20 years would provide a comfortable but not exceptional retirement. Reducing the amounts which could be saved “tax free” would of course impact on the amounts which higher paid individuals set aside for their retirement. At the same time, such a move would be politically expedient, not too many people would be affected in practice and those who were would attract little sympathy from the vast majority of tax payers.
Will such a measure be brought in? There are arguments for and against, and I would expect significant resistance from many quarters. However, where such changes have been announced in the Autumn Statement in the past, they have been brought with immediate effect (using “anti forestalling” provisions).
What I would say as a tax advisor is that protecting against such a change is a relatively straightforward process for many who would be affected. Where a person had intended to make significant contributions over the remainder of the 2012/13 tax year which would have taken them over a limit of £30,000, that person may want to accelerate the contributions so that they are made prior to 5th December 2012.