Johnson’s income tax cut would hit pension tax relief for high earners

Tom Selby
10 June 2019

•        Tory leadership favourite Boris Johnson reportedly plans to increase the higher-rate income tax threshold from £50,000 to £80,000 
•        Policy would see higher earners pay up to £6,000 less in income tax each year
•        Income tax move would have knock-on impact on pension tax relief

Tom Selby, senior analyst at AJ Bell, comments: 

“This leadership race was always going to see some pretty naked electioneering aimed squarely at core Conservative voters. None of us should be surprised that bookies’ favourite to be next Prime Minister Boris Johnson is among the first to strip off.

“The most obvious impact of this move would be to drastically reduce income tax bills for those earning between £50,000 and £80,000 – although this would in part be tempered by higher National Insurance Contributions. Higher-rate taxpayers who are above state pension age and thus don’t have to pay NICs at all would likely be the biggest winners from the policy.

“Retirement savings incentives would also be affected, with tax relief on contributions for those earning between £50,000 and £80,000 dropping from 40% currently to 20%. Of course the combination of matched contributions from their employer, NICs relief and tax-free investment growth over time mean there would still be every reason for this group of people to save in a pension.

“One interesting thing to note is that MPs’ salaries currently stand at £79,568, meaning they would benefit significantly from this tax cut. Only Johnson himself knows the extent to which it influenced his decision in proposing a new threshold just above this level.”

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