Are you over-rewarding the taxman?
Dr Benjamin Holdsworth on the record pensions tax yield
HMRC has announced record revenues from individuals generating tax payments by breaching strict yearly savings limits.
The taxman’s yield from annual allowance breaches in 2016-17 was £517m – a sharp rise from £143m the previous year.
The annual allowance limits the amount of tax-free pension savings, which can be accrued per year to £40,000. Some 16,590 pension savers reported exceeding the annual allowance through their tax returns. Only 5,430 individuals reported a breach in the previous year.
As well as the standard allowance, which has fallen from a peak of £255,000 in 2011 to just £40,000, a new ‘tapered’ annual allowance was introduced in 2016. This reduces the limit down further on a sliding scale to as little as £10,000 for those earning more than £150,000 per year.
In the same announcement, it was revealed that revenues from taxpayers breaking the lifetime allowance which governs tax-free pension savings overall reached £102m in 2016-2017, up from £66m in the year before. The lifetime allowance has been cut from £1.8m in 2012 to just £1.03m now.
In fact, since the so-called ‘pension simplification’ in 2006, total annual allowance tax charges have netted HMRC over £1,200m and lifetime allowance breaches have generated a revenue of £335m.
The only way to avoid adding to the Treasury coffers unnecessarily is to check your situation very carefully and to establish what can be done to mitigate charges well in advance.
Dr Benjamin Holdsworth is director of Cavendish Medical – specialist financial planners for medical professionals in the NHS or private practice. For a second opinion on your finances, please contact us on 020 7636 7006. http://www.cavendishmedical.com
The content of this article is for information only and must not be considered as financial advice. Cavendish Medical always recommends that you seek independent financial advice before making any financial decisions.
Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. The value of investments and the income from them can fluctuate and investors may get back less than the amount invested.