High-earning retirement savers intending to retire overseas can take a last-ditch opportunity to boost their pension fund by up to £18,000 if they act soon.
Any saver considering becoming an expat has the chance to pay extra cash into their pension and gain extra tax relief to carry across into a tax-effective Qualifying Recognised Overseas Pension Scheme (QROPS).
But the chance may soon disappear as Chancellor George Osborne has dropped some heavy hints that higher rate tax relief on pension contributions will go in Budget 2016.
Instead, all taxpayers will pick up flat rate relief at as low as 20%.
For retirement savers who will soon become expats, switching cash from an onshore pension to a QROPS means taking any pension relief as part of the fund.
Budget change on the way?
The current rules allow high earners – anyone in the 40% or 45% tax brackets – to collect pension contribution relief at the same rate as they pay income tax.
The maximum amount someone can pay into their pension this year is £40,000, so anyone paying tax at a higher rate with money to spare should contribute as much as they can up to the limit.
For a 40% taxpayer paying £40,000 into a pension, the tax relief is £16,000.
For a 45% taxpayer, the amount is £18,500.
If the rate drops to 20%, both sets of taxpayers would receive tax relief of £10,000.
The government says no decision has been made and that Osborne will make any announcement regarding changes in the Budget.
Flat rate pension tax relief
“Flat rate tax relief is just one option under consideration and the government has yet to decide on whether to make any changes at all,” said a spokesman for the Department of Work and Pensions.
Whatever Osborne says in the Budget, paying into a pension now would seem worthwhile.
If the tax relief rules change, savers have optimised their opportunity to increase their fund, while if no change is made, next year’s contributions can be adjusted accordingly to make up for the extra payment into the fund this year.
Once in a UK pension, tax relieved savings are protected as part of any future QROPS transfer, so even if you do not intend to move overseas for some time, topping up your pension now is worthwhile.
For more information about QROPS and the benefits it provides, download the iExpats QROPS Guide or complete the Get Advice form.
