The Finance Bill has closed a tax loophole in pending pensions legislation, which could have lump sums paid out without being subject to a tax charge, says Abbey for Intermediaries.
AfI says amendments to the Inland Revenue's pensions simplification proposals have introduced a "back door" tax which will affect people opting for income drawdown.
Under previous proposals, personal pension rules provided that if a member died before vesting and their spouse or dependants chose to take income drawdown, but subsequently themselves died before purchasing an annuity, the remaining fund could be paid as a lump sum withou incurring a 35% tax charge, AfI explains.
However, this will no longer be possible as it appears the Revenue has closed the loophole by stating in the Finance Bill that ALL lump sums payable on death during drawdown will have be subject to a 35% tax charge.
Mike Brown, head of Pensions and Retirement at AfI, says: "It would appear that the Revenue has taken the opportunity to amend what is a useful tax planning provision.
"It is just unfortunate that it could not have been done in a more open and transparent way rather than slipped in by the back door," he says.IFAonline
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