Budget 2021: Sunak announces pension lifetime allowance freeze
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Pensioners may have to brace themselves for a whopping 55 percent tax raid on their pension pots if Chancellor Rishi Sunak reduces the pension lifetime allowance again in his Autumn Budget. How much could this threshold be reduced by and will you be affected?
Millions of working Brits could be impacted if Mr Sunak decides to reduce the pension lifetime allowance threshold on October 27.
If you exceed the lifetime allowance limit you will be hit with a painful 55 percent punitive tax.
The current limit stands at £1,073,100, this is the maximum you can save before you are hit with a huge bill from HMRC.
Many see this as an astronomical figure they could never hope to exceed.
But after decades of hard work and regular payments into your workplace and personal pensions, you could well have exceeded this sum.
Currently, 1.6 million savers in the UK have fallen into this bracket.
Will the Chancellor reduce the threshold for the lifetime allowance?
Mr Sunak is desperately trying to boost Government revenues.
In his last tax raid in March, the Chancellor froze income, capital gains and inheritance tax allowances for five years dragging more hardworking taxpayers into these tax brackets.
The pensions lifetime allowance wasn’t exempt from his tax blitz, he also froze this for five years.
Many now fear Mr Sunak could reduce the threshold of the lifetime allowance meaning millions could now face a hefty tax bill.
Tax experts fear the Chancellor could slash the lifetime allowance to a new low of £900,000 or even £800,000.
What is the lifetime allowance tax?
The lifetime allowance is the maximum amount you can build up throughout your working life in your personal and workplace pensions pot.
The total value of your pension pot, including any growth accumulated over the years is measured by HM Revenue & Customs.
The State Pension is exempt from this, it will not count towards your personal lifetime allowance as it is always tax-free.
If you exceed the £1,073,100 maximum, even unwittingly, you’ll have to hand over more than half of your savings to the taxman.
Why was the lifetime allowance introduced?
This tax was initially introduced to stop the super-wealthy from using pensions to avoid paying taxes.
It stood at a whopping £1.8 million ten years ago, so only the wealthy were impacted by it.
Now normal taxpayers have been hit by this tax, as Governments have refused to increase the threshold in line with inflation as initially promised.
In fact, they have reduced the threshold to such a low level that ordinary Brits are now impacted by it.
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