FOR ADVISERS ONLY
2010 Budget Summary
Tapering of tax relief
A simple alternative to the complexity of tapering tax relief would be to reduce the annual allowance to a level that achieves the same end, say £50,000. Unfortunately, it looks like industry lobbying has failed to convince the Government that there is another way and we're stuck with these complex rules.
Extension of triviality commutation
A welcome development, although coming up with a proposal for small personal pension pots that wouldn't be open to manipulation will be a challenge. The joint life annuity proposal is good news. It'll be interesting to see what they mean by "small pension pots" when we get more detail.
After the fireworks of the last Budget and December's Pre-Budget Report, the 2010 Budget was (thankfully) a bit of a damp squib for pensions, largely confirming what we already knew:
- the freezing of the personal allowance at £6,475 and of the basic rate tax band to the next £37,400. Higher rate tax of 40% will apply to taxable income over £37,400 and a new additional rate of tax of 50% will apply to taxable income over £150,000
- the tapering of tax relief, from April 2011, for pension contributions for those with income of £150,000 or more and the anti-forestalling measures that will apply to prevent abuse in the intervening period
- the reduction, from April 2010, of personal allowances for those earning £100,000 or more
- the extension of the increase of the annual ISA allowance to £10,200 to all borrowers from April 2010. It applied from October 2009 for those aged 50 and over
- confirmation that the standard lifetime allowance and annual allowance will rise to £1.8 million and £255,000 respectively from 6 April 2010 and will stay at that level for the following five tax years up to and including 2015/16.
Since 1 December 2009, members of occupational pension schemes have been able to commute small funds of £2,000 or less from their schemes regardless of what other pension pots they have. In the Budget, the Government out of nowhere stated that it was open to proposals to extend those rights to personal pension funds and to allow couples to pool small pension pots in order to buy a joint life annuity.
However, whatever simplification was adopted would have to avoid additional costs for the Exchequer or HMRC and not be open to manipulation.
The information provided is based on our current understanding of the Budget 2010 and associated documents and may be subject to alteration as a result of changes in legislation or practice.