Pensions Law in United Kingdom

Most Popular Entries related to Pensions Law

• Pensions Law Practice (in the United Kingdom)
• Pensions Law Reports (in the United Kingdom)
• Pensions Law Handbook (in the United Kingdom)
• Pensions solicitors (in the United Kingdom)

Some Popular Entries in the European Legal Encyclopedia related to Pensions Law

• Pensions Law (in European Law)
• Pensions Law Practice (in European Law)
• Pensions Law Reports (in European Law)

Taxation of Pension Provision

The pension lifetime allowance

The pension lifetime allowance – which sets the maximum amount of tax-relieved pension savings an individual can accumulate over their lifetime – is set to reduce from £1.5 million to £1.25 million on 6 April 2014.

HMRC will offer individuals the chance to apply for fixed protection. Fixed protection will allow individuals to retain an underpinned lifetime allowance of £1.5 million provided they have no further build-up of benefits in defined benefit arrangements and make no more contributions to defined contribution arrangements.

In addition to fixed protection HMRC will allow individuals to apply for individual protection, which applies (in summary) as follows:

• Individuals with benefits valued at more than £1.25 million on 5 April 2014 can apply.
  They will get a personal lifetime allowance equal to the value of their benefits on 5 April 2014 subject to an overall maximum of £1.5 million and can continue to build up benefits in registered pension schemes. This means for example that if the overall value of their benefits falls they will be able to make further contributions to top up.
• They will revert to the standard lifetime allowance (£1.25 million from 6 April 2014) if this rises back above their personal lifetime allowance (value of their benefits on 5 April 2014) in the future.
• It will be possible to apply for fixed protection and individual protection (though fixed protection would have to have been applied for before 6 April 2014).
• Individuals will have until 5 April 2017 to apply for individual protection.
• If an individual exceeds the annual allowance after 6 April 2014 and suffers a consequent reduction to their benefit because the scheme pays the tax charge, this will not affect their personal lifetime allowance under individual protection.

Danvers v HMRC [2016] UKFTT 3 (TC)

In 2009 the appellant, then 41 years old, had wanted to access part of his pension fund without incurring income tax. To that end, he became a member of a registered self-invested personal pension scheme to which he transferred his existing pension funds of approximately £35,000. He then instructed the scheme to invest the funds by purchasing shares in a wholesale lending company. Based on that investment, a further company agreed to loan him around £18,000 to be repaid from the net proceeds of his pension. The Revenue decided that the loan was an unauthorised payment under the FA 2004 and subject to an income tax charge and surcharge under sections 208 and 209 respectively.

The issues were (1) whether the loan could be classed as a “payment”; (2) if so, whether it had been made by a registered pension scheme to one of its members as defined by section 160(2) having regard to the interpretation provisions in sections 279(2) and 161.

It was held that the loan was a payment, and given that it did not fall within the list of authorised payments in section 164, it was an unauthorised payment. Further, if a loan was not a payment, there would have been no need to include “authorised employer loans” in the class of “authorised employer payments” in section 175.

At first sight, as the loan had been made by the further company, rather than the scheme, it appeared that it could not properly be regarded as a payment by the pension scheme of which the appellant was a member. However, the interpretation provision in section 279(2) made it clear that references to payments by a pension scheme were to be interpreted as payments “made from sums or assets held for the purpose of the pension scheme”. That set the scene for the provision in section 161(3), which stated that a payment should be interpreted as such when it was made “in connection with an investment … acquired using sums or assets held for the purposes of a registered pension scheme”. The loan had been an unauthorised payment within section 160(2) and was therefore subject to the income tax charge and surcharge.

Source: Ryan Hawthorne, Jolyon Maugham and Jonathan Peacock, QC, “Employment Practitioner’s Guide to Taxation”, Third Edition