Keith Brooks

WITH the mini-budget last year followed shortly after by another Prime Minister and another Chancellor along with their own budget, many people could be forgiven for losing track of what it is the UK Government is doing to manage the country’s finances.

This is particularly true when it comes to changes on tax – a subject that is already fraught with complexity and confusion.

However, we are where we are and the “new” budget was introduced in order to correct some of the shortcomings of the mini-budget and we can reasonably assume that the tax changes announced should remain in place, at least until the next General Election anyway.

Specifically, some key changes were around pensions.

Now of course this is a topic of significant importance to pretty much all of us, but the two main policy changes will be of particular interest to high earners or those with large pension pots already.

Firstly, the Chancellor announced that the annual allowance would be increased to £60,000 per annum. The current annual allowance is £40,000.

Contributions to a pension attract tax relief at the highest marginal rate and, for those with an inheritance tax issue, it is undoubtedly beneficial to maximise pension contributions.

It is also important to be aware that you can carry unused allowances from the three previous tax years, so, if you haven’t done so already, it is definitely worth checking right back to 2019/20 if your 2022/23 allowance is fully utilised.

In a further move, tax thresholds have also reduced which means making pension contributions is the perfect option to reduce your taxable income.

The highest rate of income tax in Scotland now begins at £125,140 and you lose your personal allowance with earnings over £100,000. This results in an equivalent tax rate of around 60% at this level. At this stage, some serious and well thought through tax planning can play an important role.

The second major policy change was the removal of the pension lifetime allowance.

This was removed as of 6th April 2023 and it is planned to be abolished by 2024/25.

This was a major intervention by the new Chancellor and some might argue it was only done so to target a very small part of the working population e.g doctors.

For some time the NHS has been losing doctors at an alarming rate – to some degree the existing lifetime allowance acted as a deterrent to GPs for example, staying on, as given their earnings levels, they would have breached this limit or lifetime allowance. From a tax perspective this made continuing to work a rather less desirable proposition.

However, whatever the reasons for the change, it will have an impact for any individuals with large pension pots and actually brings pensions back into play for many people. It also makes it more attractive for those in other professions, other than medical, to either remain in a job or even to return to work.

The consequence of the changes means making pension contributions beneficial once more, as they can be made without worrying about a punitive tax charge. It can also be a valuable way to shield funds from inheritance tax.

There is no getting away from the fact that tax, and certainly personal tax, is a highly complicated subject area and it can be very easy to either fall foul of HMRC or even miss out financially by not maximising what the government allows you.

It goes without saying that if you do not deal with tax matters on a daily basis or are a professional in this field, it could well be a wise move to seek advice from someone who is.

An independent financial adviser can provide the necessary expertise and guidance to ensure you are meeting your obligations and also making the most of your hard-earned cash.

Keith Brooks is a chartered financial planner at Aberdein Considine