Sunak is scrambling to boost Government revenues, and your pension could be right in the firing line. The Chancellor unleashed a tax blitz in his March Budget, and now he is back on the attack as he prepares to deliver his Autumn Budget and Spending Review on 27 October.

In March, Sunak froze income tax, capital gains tax and inheritance tax allowances for five years until 2026, dragging more taxpayers into the net.

He also attacked company and personal pension savers, by freezing the pensions lifetime allowance for five years.

The lifetime allowance is the maximum you can build up in workplace and personal pensions, while still enjoying full tax benefits. It does not apply to the State Pension.

If you exceed it, even unwittingly, you will have to hand more than half of your savings to HM Revenue & Customs, in the shape of a vicious 55 percent tax charge.

The lifetime allowance was introduced to stop the super wealthy using pensions as a tax dodge, but now it is being used to squeeze yet more money out of ordinary Britons.

A decade ago the lifetime allowance stood at a thumping £1.8million but instead of increasing in line with inflation, successive Chancellors have steadily hacked it back to today’s level of £1,073,100.

In March, Sunak inflicted a further blow by freezing the lifetime allowance until the 2025/26 tax year.

Now tax experts fears he will cut the lifetime allowance again, to £900,000 or even as low as £800,000. The lower it goes, the more people will get caught out.

Although the numbers affected will be low at first they will rise over time and future Chancellers could continue to cut the allowance until millions have to pay punitive tax rates on their hard-earned savings.

Tom Selby, head of retirement policy at AJ Bell, said repeated cuts to the lifetime allowance could soon hit those with more modest pension pots. “It would inevitably drag more people into the net, further boosting Treasury coffers.”

The amount of tax swallowed by the lifetime allowance is already spiralling.

More than 8,500 pension pots were hit by the lifetime allowance charge in the 2019/20 tax year, incurring penalties totalling £342million, up 21 percent on the year before.

GPs and hospital doctors in the NHS pension scheme are among those hardest hit, while almost six in 10 are considering early retirement avoid breaching the lifetime allowance, according to a British Medical Association survey.

The lifetime allowance does not apply to how much you pay into a pension, but how big it ultimately becomes. This means it works as a tax on successful investors.

As pension pots rise and fall in value with stock markets, savers could bob above the allowance one year and get penalised without warning.

Selby said it adds yet another layer of “horrific complexity” to the pension system, which far outweighs the money raised.

Only one in five understand the lifetime allowance, and more than a third had not even heard of it, according to research from Wealthify.

Jon Greer, head of retirement policy at wealth manager Quilter, said the Government should be doing all it can to encourage Britons to save for their retirement, rather than punish them. “Lifetime allowance rules require intricate pensions knowledge but and time again they catch people out.”

Higher earners should check all their pensions to see if they are in danger of breaching the allowance. If worried, put new money into other forms of saving such as tax-free Isas.

Source: Express.co.uk