Pension flexibility: HMRC developments

19 December 2014

the issuing of draft regulations.

The HMRC report covers:

· The Taxation of Pensions Act 2014 (TOPA14) - The Bill received Royal Assent on 17 December and will have effect from 6 April 2015. As this was a money bill the Lords were only able to debate the Bill but could not amend it, so the wording in the Act is the same as the Bill that left the House of Commons on 3 December

· Regulations to support TOPA14 - HMRC have now issued three draft sets of regulations for comment in connection with TOPA14. These relate to:

o The Provision of Information (covering reporting requirements where new BCE5C occurs , and transfers of tax free beneficiaries drawdown funds)

o Overseas Schemes (the elements that we could not include in TOPA14)

o Flexible and other annuity transfers (using the new vires introduced into FA04 by TOPA14).

· Autumn Statement announcement - HMRC hope to publish early in the New Year draft legislation for comment for the changes in connection with annuities that were announced at Autumn Statement

HMRC have also had a number of questions about whether the changes in TOPA14 have any IHT impact. They say that hopefully the following clarifies the position.

· For inheritance tax purposes, payments made at the discretion of the pension provider are not included in the deceased’s estate because there is no absolute control over the payment to be made. Where a payment is not discretionary and is made to the estate or to a named beneficiary as of right, the sum is included in the estate and is therefore liable to inheritance tax, although it will be exempt if it is paid to a surviving spouse of the deceased. The Taxation of Pensions Act does not change this treatment .

· At present anyone can receive a lump sum death benefit and the Taxation of Pensions Act does not change that. However, the Act introduces a new type of beneficiary, a nominee, who may receive a pension death benefit. The Act does not change the fact that it is for pension providers to determine the type of death benefits they want to pay, a lump sum death benefit or a pension death benefit, or possibly a combination of the two. This discretion means that the benefits remain exempt from inheritance tax even if subsequently the administrators decide that the pension death benefits should be paid to a nominated beneficiary.