Looks like pensions are getting hit again!
2017’s Spring Budget saw Chancellor Philip Hammond dash any hopes of stability for pension schemes, as tax relief allowances were once again reduced - and it’s especially bad news for Brits who’ve already started drawing money from their pensions.
The latest Budget announcement saw pension tax relief allowances reduced from £10,000 to just £4,000 per year for anyone who have previously drawn from their pension - leaving many in doubt as to the viability of this tax-saving solution. With people who haven’t withdrawn from their pension able to put ten times as much back into their pensions, what these consistent cutbacks demonstrate is that the ‘freedoms’ associated with flexible pensions aren’t quite as free as they may once have seemed.
For higher earners, the ability to legally mitigate tax is crucial to being able to reap the rewards of their greater income. But, as the UK Government continues to make substantial cuts to pension tax relief allowances, this particular avenue is becoming increasingly less viable - although there’s no denying pensions are, and will continue to be, a core part of any holistic financial strategy. What these continued reductions do suggest, however, is that it may not be worth pursuing pensions as a tax-reducing initiative at the exclusion of other available opportunities.
Thankfully, initiatives like the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCT) give Brits an opportunity to legally mitigate their tax bills while offering some added benefits.
By investing in an early-stage company through a scheme like EIS or SEIS, you can put your money into an eligible enterprise to help the company reach an exciting new phase of growth - and in exchange for your investment, you could see exciting returns in addition to the welcome tax-saving advantages.
If you’re exploring alternatives to pensions following this Spring Budget bombshell, private investment could serve as a welcome addition to your ongoing financial strategy. Explore our range of investment opportunities, or call us on 0191 500 5950 to find out more about the benefits of EIS and SEIS eligibility.