What happen’s next?
1st July 2020
It’s clear that governments and central banks had to take action in pretty much every country across the world. Without Furlough schemes and cheap, easy to access loans and grants, an economic disaster of truly unfathomable scale would likely have unfolded everywhere around the globe. The situation is still precarious to say the least, but ultimately all that money needs to be paid back.
Many countries in the west still hadn’t fully recovered from their deficits and high level of government debt caused by the financial crisis in 2008/9, but yet were forced to throw hundreds of billions of cash into their respective systems when the pandemic started to shut down their economies.
Here in the UK, government debt has exceeded GDP for the first time since 1963, climbing by £55.2bn in May alone. At some point, perhaps not too far away, the Chancellor will start to look for ways to get this back.
We have already seen comments from Boris Johnson that he will not reintroduce a programme of austerity that proved unpopular for the coalition government after the financial crisis, so what options does that leave open?
Every year, ahead of the budget, we wait in anticipation for the potential loss of valuable tax incentives and allowances, particularly regarding pension funds and contributions. Most years, nothing happens. Our fear is this could be the year.
Higher Rate taxpayers are able to contribute up to £40k per year into a pension fund, in some instances this can increase to £160k if previous years reliefs haven’t been used. For a Higher Rate taxpayer, a contribution of £40k costs them just £24k after tax relief. For Additional Rate taxpayers, those with earnings of over £150k per year, a £40k contribution costs just £22,000.
Removing or reducing relief for high earners has been a popular subject for tabloids for years but could be a popular (or perhaps the least unpopular) way for the government to find large savings.
In our view, if you have the ability to make use of these allowances you should do so now, whilst they are still available to us. Who knows what fiscal actions await us.
Get in touch If you want help calculating your allowances or exploring your options.