The previously announced reduction in basic rate income tax from 22% to 20% from 6th April created concerns for 2 sectors.

Firstly, charities were concerned that they would lose out because Gift Aid donations would only benefit from 20% income tax relief with a resulting reduction in the gross donation.

Secondly individuals making personal pension contributions would only benefit from 20% tax relief at source instead of 22%. For instance a personal pension contribution of £78 would be worth £100 after basic rate tax relief in 2007/08. After 6th April the same £78 contribution becomes £97.50 after basic rate tax relief. This represents a small but significant reduction in your pension fund. Higher rate tax payers can claim back a further 20% through self assessment, increased from the previous 18% but the gross pension premium is still reduced for the same initial investment.

It was pleasing to see the Chancellor act on the concerns of charities and add 2% relief to Gift Aid donations for a transitional period.

It was a shame that the same generosity was not extended to the millions of us trying to save for our retirement.

• Print
• Comments
• Trackbacks