HM Revenue & Customs says it is aware of interest in setting up pensions arrangements intended to increase the value of an individual's pension rights at 6 April 2006, or rights in relevant schemes in an 'artificial' manner.
It says it will view these acts as an ‘abuse’ of the primary protection and enhanced protection provisions by avoiding the lifetime allowance charge, adding in the run up to A-Day it will move to address such schemes.
A day will provide individuals with a lifetime allowance in respect of the tax relief given to their pension saving, the bulk of whom will have a standard lifetime allowance, set at £1,500,000 for the forthcoming tax year. Any amount exceeding that figure will be subject to an income tax charge or a lifetime allowance charge.
Revenue says the value of an individuals pension rights at 5 April 2006, which exceeds £1,500,000 can notify HM Revenue & Customs of their intention to have their benefit rights protected from the lifetime allowance charge, namely primary protection.
It adds those individuals with rights in relevant arrangements, and exceeding £1,500,000, or not will be able to do the same.
The government office sites an example of abuse in the form of the small self-administered scheme. It says such schemes can be set up to provide money purchase benefits for the scheme members.
It says it has recently become aware of proposals to seek tax approval for newly established small self-administered schemes, providing benefits for scheme members on a defined benefit basis.
Revenue argues the intention is to create a set benefit amount up to the maximum and within the current tax rules, which would then be included as part of the value of an individuals pension rights seeking primary protection.
It adds: “However, there would be no particular attempt made to properly fund that benefit promise by A-Day. Instead, the opportunity would be there to fund, after A day, benefit rights that are, to all intents and purposes, post A day benefit rights but with the benefit of an enhanced lifetime allowance.”
The Revenue says it is likely ‘to view this type of staged and exploitative activity as a scheme or arrangement leading to tax avoidance. When such abuses come to light, tax approval will be called into question.’
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