Pension charge
Certain payments made out of tax subsidised pension savings which reduce the amount of savings available to provide a pension in retirement are subject to tax charges designed to re-coup the tax reliefs related to them: the 'unauthorised payments' charges. HMRC also have power under the new pensions tax regime to exclude by regulation specified types of payment from being subject to the unauthorised payments tax charge, which may, for example, be used where the specific type of payment does not result in any diminution in value of the fund available to provide for a pension
HMRC have received representations on the tax treatment of certain payments made to individuals holding with-profits policies to facilitate the reattribution of inherited estates, which is defined in the Conduct of Business sourcebook issued by the Financial Services Authority as an amount representing the fair market value of the with-profits assets less the realistic value of liabilities of a with-profits fund.
Where such payments are made to those holding the with-profits policies as part of a pension arrangement, an unauthorised payments charge may arise. Where, however, such a payment does not diminish the value of the funds, and is made to protect policyholders' interests, it should not be subject to an unauthorised payments tax charge.
The Government therefore intends to amend pensions tax legislation to relieve payments made in conjunction with a reattribution mechanism which involves the application of Part 7 of the Financial Services and Markets Act 2000 (transfers of insurance business) from the unauthorised payments tax charge.
HMRC have recently published draft regulations for consultation on this subject and welcomes representations on whether the scope of this measure should be limited to formal reattributions that make use of this mechanism or whether it should be extended to cover alternative ways of carrying out such transactions which meet the principles set out above.
Comments should be sent by 31 August 2007 to: Pensions Consultation, Pensions Policy Team (Room G63), HMRC, 100 Parliament Street, London SW1 2BQ, e-mail: pensionsconsult@hmrc.gsi.gov.uk.
www.hmrc.gov.uk
