|
The Chancellor has announced in his Budget Statement that the Government's proposals to simplify the taxation of
pension benefits will be implemented.
There have, however, been some revisions to the proposals published in the pre-Budget Statement, namely;
- The new regime will not now be introduced until 6 April 2006.
- The Lifetime Allowance (LTA) on tax-privileged pension savings will be introduced at £1.5m in 2006 and will increase in prescribed steps to £1.8m in 2010.
- The initial Annual Allowance (AA) for 2006 will be set at £215,000 and will similarly increase in prescribed steps to £255,000 in 2010.
- The LTA and AA will be subject to quinquennial review, the first review taking place in 2010.
The key points of the proposals published in the pre-Budget statement that are unchanged are:
- There will be a 25% tax charge – the Lifetime Allowance Charge - on funds above the LTA.
- Funds above the LTA may be withdrawn as a lump sum, subject to a 55% tax charge (representing the 25% Lifetime Allowance Charge plus a 40% income tax charge
on the net balance).
- An Annual Allowance Charge at 40% on the value of any pension accrual made in a tax year that exceeds the AA.
- Tax relief on personal contributions up to 100% of annual earnings (maximum £215,000).
- Defined benefit rights valued using a factor of 20:1 for the purpose of testing against the LTA and 10:1 for the purpose of the AA.
- LTA and AA will normally both be indexed in line with price inflation.
- Retention of the proposed method for providing (limited) protection of accrued benefits at A-Day – this is known as ‘Primary Protection’.
- Introduction of an additional method for protecting rights accrued up to A-Day from the Lifetime Allowance Charge – ‘Enhanced Protection’. Individuals using this
method will have to opt out of all approved pension plans before A-Day.
- The value of unapproved plans will not count towards the LTA, but their tax treatment is being changed.
For further information go to the Inland Revenue’s
Budget Note on this subject or the
proposals contained in the pre-Budget statement.
We have developed a range of material to help our clients understand the full
nature of the proposed changes, and their implications for both companies and
executives:
We will, of course, be developing further materials as more details of the
proposals become known.
This site will be regularly updated as information becomes available.
|
