Is there a summer tax storm on the way?

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Following the surprise return of a majority Conservative Government, George Osborne announced at the weekend that he will deliver a second budget statement on July 8th this year.

The need for such an action almost certainly stems from the Tories pre-election promise to pass a law preventing the increase of several key taxes during this parliamentary term.  This law will significantly reduce the options available to the Chancellor as he seeks to generate Treasury income for the next 5 years.

So the second budget is not unexpected.  The real question is where will the extra money come from?  Tackling tax evasion and aggressive tax avoidance will only take the government so far, what they will need are some genuine and guaranteed wins for the Treasury in the short term.

It seems likely that one target here may (again) be a radical change to the tax-reliefs inherent in UK pension savings.  There is broad political consensus that such reliefs need to be revisited in a post Auto-Enrolment world, and indeed every party manifesto made reference to this.  And with so much money being spent on pension tax reliefs each year, this could well be a key target.

Another consideration is the persistent suggestion that pension savings and tax advantages should perhaps be levelled with other forms of saving (such as ISA’s).  A persistent advocate of this policy is the think-tank the Centre for Policy Studies.  This grouping does appear to have the ear of policy makers, so this could also potentially feature.

That said, it should be noted that the new Pension Freedoms are already likely to be creating a huge positive return to the Treasury coffers.  These freedoms allow many savers to (effectively) bring forward their spending of retirement savings, with the associated tax implications that this implies.  And the March budget announcement to further restrict the Lifetime Allowance for pension savings from 2016 will also be beneficial to the Treasury.  So it’s quite possible that the Chancellor may consider that pensions should be left alone for the moment.

We shall have to wait and see, but it would be prudent to expect at least some further change to this area. It could be another stormy and turbulent period for pensions.

Best regards

Steve

Wellbeing at WorkInternationalProtection/RiskWorkplace Pensions and SavingsWorkplace Benefits Platform

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About the author

Steve Herbert is an award-winning thought leader on Pensions and Employee Benefit issues. His principal aim is better communicating the value and usage of employee benefits to employers. This he has achieved through many (highly successful) seminar series over the last decade, and his regular and widely read blog posts on the subject.
He also acts as a judge in HR and Employee Benefits industry awards, article writer, and product innovator. Steve is a regular contributor to DWP forums and compulsive responder to formal Government Consultations on pension and employee benefit issues. He is occasionally accused of making employee benefits interesting.