His Majesty’s Revenue and Customs has commissioned new research into a pensions scheme used by millions.
Rachel Reeves is reportedly planning a fresh tax raid. (Image: Getty )
Millions of pension savings could be at risk under a new stealth tax raid under Rachel Reeves after HMRC officials launched an investigation into workplace pension schemes. The tax office is understood to be probing reforming the salary sacrifice system in a bid to plug a black hole in public finances in the wake of the Chancellor’s October Budget and President Donald Trump’s tariffs.
Salary sacrifice involves an employee forgoing or ‘sacrificing’ part of their wage to enable their employer to make extra contributions to their pension pot. This method of saving also effectively lowers the employee’s annual taxable salary, so they pay less income tax and National Insurance.
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One million pensioners face tax bombshell due to frozen thresholds
But The Telegraph reports that potential changes to the system being considered could cost the average earner more than £500 a year. Sir Steve Webb, the former pensions minister, told the publication HMRC’s consultation on the salary saving scheme put a potential tax raid “firmly on the agenda”.
Millions of pensioners are at risk of a stealth tax, according to reports (Image: Getty )
In the report published by HMRC, the tax office states it is looking at three different ways in which the benefit could be “hypothetically” cut back. According to Money Week, potential cutting routes could be: removing the National Insurance exemption for employers and employees, removing the income tax exemption for employees on their sacrificed salary, or removing the National Insurance exemption but only on salary sacrificed above a £2,000 per year threshold.
Sir Steve, from consultants LCP, said: “With a Chancellor reportedly looking to make up a multibillion-pound hole in the public finances in her autumn Budget, this research suggests that changes to salary sacrifice are firmly on the agenda, and likely to be considered as a potential revenue-raising measure.”
HMRC could be hammering pensioners with more taxes (Image: Getty)
Jonathan Watts-Lay, a financial wellbeing specialist, called any changes to the salary sacrifice scheme a “stealth tax”.
He told the Telegraph: “You’re basically saying to someone you either need to pay more money, or you carry on and your pot will be smaller when you get to retirement.
“There’s no positive impact of it. They either take the pain, or they take the pain when they get to retirement.”
A Treasury spokesman told the Telegraph: “These claims are totally speculative. HMRC regularly commissions independent research on all aspects of the tax system.
”We are committed to keeping taxes for working people as low as possible.”
