A New Year and a New Tax Planning Opportunity

Reports Mark Hoskin, 8th April 2010

In May we face a new election and most likely an emergency budget shortly after that. The conservatives plans on National Insurance are well documented, but with the country in the state that it is the chances of a conservative government turning back the clock, dropping the rate of tax from 50% to 40%, re-introducing higher rate tax relief on personal pensions to those earning over £150,000 and restoring the personal allowance for those earning over £100,000 are slim.

But for those aspiring to earn in these income brackets in the near future the tax law demands a change in the way that you think about your money and the priorities you have in spending it. While the opportunity to invest out of gross earnings has disappeared for those earning over £150,000, for those earning less than that higher rate tax relief is still available at 40%. This means that for every £100 you can afford to put in a pension you effectively get £40 of tax relief. It is perhaps too complicated to explain succinctly how pension contributions for those earning between £130k and £150k work here, but for those earning over £100,000 and below £130,000 a pension contribution can get you your personal allowance back, saving at times tax at a rate of 60% not 40%.

Where are you guaranteed this type of return on an investment elsewhere? So whatever you think about pensions - remembering not to confuse the pension vehicle with the investment placed within it - you should be thinking about using pensions while you can and before you get too successful, because tax relief at 40% to 60% will not be there for ever.

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