Budget will be used to close A-day holes
Chancellor set to clampdown on pension loopholes
Chancellor set to clampdown on pension loopholes
Gordon Brown is preparing to shut down loopholes in the government’s new
pensions system ahead of its introduction in the new tax year.
Pensions rules are set to be overhauled on 6 April, or A-day, as part of a
plan to make pensions easier to understand and more attractive to invest in. But
advisers and the industry fear worries about tax leakage could result in a spate
of complex anti-avoidance rules that will frustrate the intentions of the
reforms.
Tom McPhail, an independent financial adviser from Hargreaves Lansdown, said
that there were two key areas Brown was worried about.
One relates to new rules allowing individuals to take lump sums out of their
pensions tax free.
‘Under the rules as they stand, individuals could take out a tax-free lump
sum and then put it back in as a tax free contribution.’
That lump sum would attract a pension rebate, which could then be further
recycled to generate more returns.
‘The chancellor put out a consultation paper with a complicated way of
resolving this,’ McPhail said, with final plans expected in the Budget on 22
March.
The other area relates to inheritance tax. As the plans stand, individuals
will not have to buy an annuity at age 75 and may be able to pass pension cash
down through the generations. Since the money is in a pension fund, it would not
attract IHT, a fact HM Revenue & Customs is thought keen to address.
John Whiting, tax partner at PricewaterhouseCoopers, said he did not expect a
raft of changes related to A-day. ‘I would certainly expect a few tweaks and
twiddles.
‘But we know that HMRC is very concerned about avoidance and tax leakage.’
Any changes of a complex nature would be likely to frustrate the aim of
simplification behind the reforms, McPhail said: ‘He’s mis-sold us a pension
scheme.’