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Rachel Reeves has a problem and it's a
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big one. Some economists predict the
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chancellor is facing a 50 billion pound
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black hole in the autumn budget. That's
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the amount Reeves will have to raise in
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fresh taxes to fund the government's
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ballooning spending plans. The biggest
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revenue raising levers available to
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government are in direct taxes like
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income tax and indirect taxes like VAT.
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But Labour already promised not to hike
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these taxes during the election. So
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there's only a handful of smaller levies
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at her disposal to make up the
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shortfall. One of the tax raids that
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appears to be under consideration is the
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pensions lump sum. That's the amount
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Brits are able to withdraw from their
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pension pots upon retirement without
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paying tax. The measures were introduced
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by George Osborne in 2014 to give
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pensioners more freedom with their
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savings and drive up growth. At present,
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the tax-free lump sum limit is set at
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25% of pension pots or 268,000
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whichever is lower. But there are now
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fears this limit could be slashed to as
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little as 40,000. If that goes ahead,
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the move would be expected to raise more
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than two billion pounds for the
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Treasury. A long way off from what the
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government needs to raise, but big
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enough to make a dent. Critics of the
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tax-free lump sum will say it's a good
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thing it's being paired back because the
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existing scheme encourages a big
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spending splurge at the start of
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retirement rather than careful
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management of savings over several
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years. But others will be worried about
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the move. Some near retirement might
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have planned a big investment such as a
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new car or a holiday home that their
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pensions tax-free lumpsum was designed
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to contribute towards and which they now
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won't be able to afford. Others will be
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worried that the move is part of a host
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of measures by the government which is
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steadily making it less appealing to
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live and work in the UK. This one tax
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alone might not be such a big deal, but
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add it to all the other new taxes under
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consideration, such as a mansions tax
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and a clampdown on inheritance tax, and
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there could come a point where some
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higher earners say enough is enough. For
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everything you need to know about the
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government's tax plans, stick with
