Abbey for Intermediaries warns in a technical note on pensions that rule changes implemented under the regime coming into effect next April could pose trouble in cases of fragmented transfers.
Citing the example of an employee’s pension rights split between different schemes, Afi suggests the Inland Revenue may start questioning just how the 25% tax-free lump sum – allowable under the new regime - is obtained.
While rules may allow for the entire 25% lump sum to be drawn from, for example, one of three different scheme, AfI say the Revenue will be drawn to revisiting this set-up because of the implication that it may be missing out on some revenue.
”For non-regulated individuals the update states that whereas the Inland Revenue has been happy to allow for the maximum tax-free cash to be apportioned entirely to one of the receiving arrangements, as of [June] it will depend on the circumstances of the individual case,” AfI says.
”The Revenue may call into question the apportionment of the tax-free cash if it has been done with a view to achieving higher tax-free cash as a result of the introduction of the new simplified tax regime.”
The issue stems from the Revenue’s view that trying to maximise access to tax-free cash post-A-day is “not in the spirit of the legislation”, AfI says.
”Therefore a valuable tax-planning tool has been lost for regulated individuals. For non-regulated individuals it appears that there is still scope for tax planning where more than one scheme covers the same employment provided the schemes in question were not generated via a fragmented transfer.”IFAonline
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