Date posted: Monday, October 28, 2013
Over the last few years we have seen a growing trend for the Government to reduce the amounts which people can invest in the tax-privileged investments that are registered pensions.
It was only a few years ago that the maximum annual contribution that a person could make to a registered pension was £255,000. With effect from 6 April 2014 it will be £40,000 – down from £50,000 in the last 4 years.
Similarly, the maximum size of the pension fund (the lifetime allowance) that can be held in tax-privileged registered pension plans reduces to £1.25m from 6 April 2014 – down from £1.5m this year and £1.8m a few years ago. The benefits from any excess funds will be taxed at 55% (cash) or 25% (pension), unless protection has been elected.
It is unlikely we have seen the end of these restrictions. There has been talk at one of the recent Party Conferences of a future reduction in the lifetime allowance to £1 million.
Furthermore there is now talk of a cap being imposed on the maximum value of investments that can be held in an ISA. The Daily Telegraph of 12 October states as follows:
Treasury officials have consulted financial services executives on plans to limit the amount that savers can hold in tax-free ISA accounts.
The Sunday Telegraph has learnt that several proposals have been looked at in reaction to what were described as concerns about the growing number of ‘ISA millionaires’.
This is a worrying development as ISAs form a bedrock of tax-efficient saving for the ordinary investor that can form a top-up to retirement pension provision. Whilst there is no tax relief on input there is a cap on the annual investment but no cap on output. Any further restriction on input would be a very disappointing development,
It is impossible to comment precisely on the potential for this change in the future. However, it once again reaffirms the message that individuals should maximise the use of tax-efficient investments whilst they are able to do so.