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Is there a summer tax storm on the way?

Following the surprise return of a majority Conservative government, George Osborne announced that he will deliver a second budget statement on 8 July this year.

The need for such an action almost certainly stems from the Tories’ pre-election promise to pass a law preventing the increase of several key taxes during this parliamentary term.  This law will significantly reduce the options available to the chancellor as he seeks to generate Treasury income for the next five years.

So the second budget is not unexpected. The real question is where will the extra money come from? Tackling tax evasion and aggressive tax avoidance will only take the government so far; what they will need are some genuine and guaranteed wins for the Treasury in the short term.

It seems likely that one target here may (again) be a radical change to the tax reliefs inherent in UK pension savings. There is broad political consensus that such reliefs need to be revisited in a post auto-enrolment world, and indeed every party manifesto made reference to this. And with so much money being spent on pension tax reliefs each year, this could well be a key target.

Another consideration is the persistent suggestion that pension savings and tax advantages should perhaps be levelled with other forms of saving (such as ISAs). A persistent advocate of this policy is the think tank the Centre for Policy Studies. This grouping does appear to have the ear of policy makers, so this could also potentially feature.

That said, it should be noted that the new pension freedoms are already likely to be creating a huge positive return to the Treasury coffers. These freedoms allow many savers to (effectively) bring forward their spending of retirement savings, with the associated tax implications that this implies. And the March budget announcement to further restrict the lifetime allowance for pension savings from 2016 will also be beneficial to the Treasury. So it’s quite possible that the chancellor may consider that pensions should be left alone for the moment.

We shall have to wait and see, but it would be prudent to expect at least some further change to this area. It could be another stormy and turbulent period for pensions.

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