The Chancellor announced in the Budget an increase in the personal tax allowance to £11,850 with effect from 6 April 2018 and the effect on pension saving, and the increase in the higher rate tax threshold to £46,350.
Kate Smith, head of pensions at Aegon, said: “People are facing a squeeze in their wallets due to a combination of rising inflation and interest rates with little sign of real wage increases in sight. On top of this employees’ paying auto enrolment minimum contributions are set to see them treble next April. The increase in the personal tax allowance will soften the blow hopefully encouraging people to keep on saving.
“Increasing the higher rate tax threshold to ££46,350 means more people should pay less income tax from next April. Some will move out of the higher rate tax bracket and become basic rate tax payers. This affects pension saving as individuals receive tax relief, or a government top-up, on their own contributions, based on their highest marginal income tax rate of 20%, 40% or 45%. Moving more people into the basic rate tax bracket means the government top-up is halved.
“Scottish and the rest of the UK higher rate income tax bands continue to diverge, as the Scottish band is currently £43,000, and unlikely to catch up any time soon. This means that some people resident in Scotland and the rest of the UK, but earning the same amount, will not only pay different levels of income tax, but also benefit from different pension tax relief on their contributions.”