Compensation for mis-sold FSAVCS during the period covered by the Financial Services Authority/Personal Investment Authority (FSA/PIA) review announced today will be exempt from tax under a new Extra Statutory Concession.
The concession will have immediate effect, and is attached as an Annex to this Press Release.
1. The FSA/PIA has today issued a policy statement which identifies a number of specified areas where the mis-selling of FSAVCS is likely to have occurred and which should be reviewed.
2. Compensation for mis-selling of the specified categories of FSAVCs covered by the review could, depending on the form in which it is paid, be liable to income tax or capital gains tax. The exemption from both these taxes provided by this concession will apply to compensation determined in accordance with the FSA Guidance for the performance of the review.
3. Compensation may, for example, be paid into an employer’s own AVC scheme along with reinstatement of the individual concerned into that scheme. Or it could be used to top up the mis-sold FSAVCS. Where either course is not possible, it may be paid direct to the individuals to whom the FSAVCS were mis-sold.
4. The tax exemption will apply only to lump sum compensation paid for the categories of FSAVCS specified in the FSA/PIA review which were mis-sold between 28 April 1988 and 15 August 1999. It will not apply to annuities (or other annual payments made to individuals) arising from compensation. (Annual payments are periodic payments of income which are capable of continuing for more than a year and which are not instalments of a capital sum.)
NOTES FOR EDITORS
1. An FSAVCS is a tax approved retirement benefit scheme which is structured like a personal pension. But it is subject to the tax approval rules for occupational pensions and can accept contributions only from employees to top up the benefits provided for them by their employer’s pension scheme.
2. Tax approved pension schemes, whether occupational (including FSAVCS) or personal receive broadly similar tax treatment: relief for employers’ and employees’ contributions; tax free build up of investment income and capital gains within the scheme; taxation of pension in payment (except for a proportion which may be taken as a tax free lump sum).
3. The tax exemption announced today is consistent with that for personal pension mis-selling where section 148 of the 1996 Finance Act exempts from tax any “..capital sum by way of loss suffered..” and interest thereon.
4. An Extra Statutory Concession is a relaxation which gives taxpayers a reduction in tax liability to which they are not entitled under the strict letter of the law. Most concessions are made to deal with what are on the whole, minor or transitory anomalies under the legislation, and to meet cases of hardship at the margins of the code where a statutory remedy would be difficult to devise and would run to a length out of proportion to the intrinsic importance of the matter.
5. Inland Revenue Extra Statutory Concessions are of general application, but in a particular case there may be special circumstances which must be taken into account in considering the application of a concession. A concession will not be given in any case where an attempt is made to use it for tax avoidance.
6. Inland Revenue concessions are published in a free book let IR 1 available from any Inland Revenue Enquiry Centre or Tax Office. They are also available from the Inland Revenue Information Centre, South West Wing, Bush House, Strand, London WC2B 4RD. The concession published today will be included in a later edition of the booklet.
FSA/PIA REVIEW OF SALES OF FREESTANDING ADDITIONAL VOLUNTARY CONTRIBUTIONS SCHEMES (FSAVCS): TAX TREATMENT OF COMPENSATION
1. The Financial Services Authority/Personal Investment Authority (FSA/PIA) issued a Policy Statement on 28 February 2000 which required a review of specified categories of FSAVCS sold during the period beginning with 28 April 1988 and ending with 15 August 1999. Guidance for the performance of the review was issued by the FSA.
2. A payment within paragraph `3′ below which is made as a result of a review of an FSAVC covered by the FSA/PIA Policy Statement and FSA Guidance will not be chargeable to income tax. Nor will the receipt of such payment be regarded for the purposes of capital gains tax as the disposal of an asset.
3. (a) The payment is a capital sum by way of compensation which has been determined in accordance with the FSA Guidance for the performance of the review.
(b) The payment is interest on the whole or part of the capital sum described at `(a)’ for a period ending on or before the earliest date on which the capital sum was determined.