A pensions expert has suggested that a Ministerial Statement read out in the House of Lords earlier this week, hints that family SIPPs might be taxed in some form.
Senior technical manager at Standard Life John Lawson believes the Revenue will add a notional amount to the estate of the member on death, which will then be taxed at 40% - the current inheritance tax rate.
Lawson provides an example of a person with a drawdown fund at 75 of £100,000 from which no income is drawn and grows to £150,000 at date of death at age 85:
He adds: “This is only my assumption based upon how the legislation applies at the moment. As the IR are consulting on this, they could come up with something completely different, for example, they could decide to tax the whole £150,000 in the example above.”
His comments follow a Government move on Tuesday to close the loophole enabling personal pensions to be used as IHT planning tools following A-Day.
The loophole occurred because investors will be able to place property into alternatively secured pensions (ASPs). From A-Day on 6 April 2006, these funds will allow pension fund holders to maintain their assets intact beyond the age of 75, rather than buying an annuity.
The written ministerial statement by paymaster general Dawn Primarolo, submitted to the House of Lords, reads: “I have asked the Revenue to open discussions with interested parties to seek a consensus on the detailed application of IHT law to the new situations arising under the simplified regime, and on how in practice cases which are chargeable should be identified and any charge should be quantified.”
The Inland Revenue says it will consult with the industry on how to apply the law to the new situations that would arise under the simplified regime.
Additionally, pensions development director at Scottish Equitable, Stewart Ritchie welcomes the clarification along with an intention to consult about how this should be done in practice.
He says: “We have been calling for this clarification, and it's a hallmark of the Revenue's approach to the new pensions tax regime that they have consulted the industry at every stage.IFAonline
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