Plans announced by Boris Johnson, who is standing to be leader of the Conservatives, to raise the higher rate income tax threshold from £50,000 to £80,000 would have a knock-on impact for pensions tax relief.
Such a policy would see higher earners pay up to £6,000 a less in income tax each year. AJ Bell senior analyst, Tom Selby, noted that the increase for workers would be tempered by higher national insurance contributions. “Higher-rate taxpayers who are above state pension age and thus don’t have to pay NICs at all would likely be the biggest winners from the policy,” he said.
However, he also noted that pension tax relief contributions for those earning between £50,000 and £80,000 would drop from 40 per cent to 20 per cent. “
“Of course the combination of matched contributions from their employer, NICs relief and tax-free investment growth over time mean there would still be every reason for this group of people to save in a pension.
“One interesting thing to note is that MPs’ salaries currently stand at £79,568, meaning they would benefit significantly from this tax cut. Only Johnson himself knows the extent to which it influenced his decision in proposing a new threshold just above this level.”
Speaking generally about the proposal, deVere Group chief executive Nigel Greens said it was “half-baked”.
“I’m normally in favour of reducing taxation – more money back in people’s pockets is always a good thing for individuals, households, businesses and the wider economy. I’m firmly of the opinion that soaking the rich, waging a war on wealth, and taxing the wealth and job creators out of the country is simply misguided on many levels.
“However, I believe that the UK’s likely next Prime Minister’s vow to cut income tax for higher earners is half-baked at best. Mr Johnson’s tax cut for higher earners – seemingly a direct plea to those eligible to vote for him to become leader – is ill-thought-through for two key reasons. First, there would be a significant net cost for the Treasury; and second, it is unlikely to get through parliament – it’s therefore just Boris virtue signalling to his base.”
Subscribe to our newsletter to receive breaking news by email.