experienceandexpertise
Summer Budget 2015
Claire Trott
Director, Head of Pensions Technical
Agenda
• Death benefits
• Alignment of PIPs
• Taper of annual allowance for high earners
• Lifetime allowance and protections
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Death benefits
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Tax charges on lump sums
• Pre 75
– Nil if designated within two years
– Marginal rate if designated after two years
• Post 75
– 45% for the tax year 2015/16
– Marginal rate thereafter
• Removal of existing 2 year rule for lump sums
– No unauthorised payment charge if paid after 2 years
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Drawdown for non-dependents
• Beneficiaries
– Dependant
• Financial dependent of the member
– Nominee
• Non- dependent, but nominated by the member / administrator
– Successor
• Non-dependent, nominated by the nominee / dependant / successor /
administrator
• Member doesn’t nominate successors
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Taxation of beneficiary income
• Dependent on the age at death of last beneficiary/member
• Last death pre age 75
– Growth tax free – within usual pension rules
– Income tax free – no annual limits
• Last death post age 75
– Growth tax free – within usual pension rules
– Taxed at marginal tax rate of beneficiary
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Taxation case study
•
Julie is aged 80 when she dies, she has nominated her younger sister
Mary
– Mary chooses to use nominees flexi-access drawdown
– Mary will pay marginal rate income tax on any income she takes.
•
Mary dies age 71 and she has nominated her son, Geoff to receive her
benefits.
– Geoff chooses to use successor’s flexi-access drawdown
– Geoff can draw income tax free at any point.
•
Geoff dies aged 80 and has nominated his son Simon to receive his
death benefits.
– Simon chooses to take successor’s flexi-access drawdown
– Simon pays marginal rate income tax on any income he takes.
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Existing dependant’s drawdown
• Designated to DD and no income taken
– New rules will apply – no tax if pre 75, marginal rate if post 75 fund
– No time limit – according to Policy dept
– Awaiting confirmation if they can switch from capped to flexi-access dd
• Designated to DD and income in payment
– Old rules will apply – taxed at marginal rate
• Second death of an existing dependant
– New rules will apply
– No need to pay out as lump sum
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New two year rule
• Income only tax free if designated within two years – pre 75
– Income can still be taken but not exempt from income tax
– No LTA test applies if from un-crystallised funds after 2 years – drafting error?
• No two year rule for successors flexi-access dd
• Expression of wishes should be clear and up to date but not binding
• Binding nominations will mean IHT charges
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Lifetime allowance implications
• New BCE 5C and 5D on death
– Test on un-crystallised benefits left to dependants or nominees flexi-access
drawdown or annuity
– Test against member LTA
• No test post 75 or crystallised funds
• Pre death BCEs and over LTA
– Leave within fund and only pay 25% LTA charge?
– Pass the income down to beneficiaries
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Alignment of PIPS
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Basics
• Pension input periods all being aligned to tax year end
• All PIPs ceased on 8th July 2015
– Even if it would have run into 2016/17 tax year
• All PIP restarted on 9th July 2015
• New PIPs will run to 5th April from now on
• May have 3 PIPs ending in this tax year
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Basics
• Tax year split into two mini tax years
– Pre alignment tax year, 6th April 2015 – 8th July 2015
– Post alignment tax year, 9th July 2015 – 5th April 206
• Pre alignment tax year has AA of £80,000
• Post alignment has AA of residual of pre alignment tax year AA
– Max £40,000
• Carry forward from three previous tax years still available
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Maximum already paid
Summer Budget 2015
Pre alignment tax year
2014
Apr
Jul
Oct
2015
Post alignment tax year
Apr
Jul
Oct
2016
Apr
2016
PIP 1 - £40,000
PIP 2 - £40,000
PIP 3 - Nil
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Some contributions paid
Summer Budget 2015
Pre alignment tax year
2014
Apr
Jul
Oct
2015
Post alignment tax year
Apr
Jul
Oct
2016
Apr
2016
PIP 1 - £40,000
PIP 2 - £20,000
PIP 3 – Max of £20,000
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Tax year PIP - Nothing paid
Summer Budget 2015
Pre alignment tax year
2015
Apr
Jun
Post alignment tax year
Aug
Oct
Dec
2016
Apr
2016
PIP 1- Nil
PIP 2 - Max of £40,000
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Tax year PIP – Maximum Paid
Summer Budget 2015
Pre alignment tax year
2015
Apr
Jun
Post alignment tax year
Aug
Oct
Dec
2016
Apr
2016
PIP 1- £40,000
PIP 2 - Max of £40,000
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Taper of Annual allowance
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Basics
• Reduction of £1 of AA for each £2 earned over Adjusted Income
– Currently £150,000
• AA Reduced to a minimum of £10,000
• No need to test Adjusted Income if earning less than Threshold
income
– Currently £110,000
• Anti avoidance measures in place
– Salary sacrifice added back in
– Flexible earnings looked reviewed
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Adjusted income
• ‘Net pay’
– which is total taxable income (chargeable to income tax) reduced by reliefs such
as trading and share loss relief
• Plus reliefs claimed under net pay arrangements and excess claims
also made in relation to net pay arrangements
• Plus personal contributions made under net pay arrangements.
• Plus contributions to overseas schemes, if non dom and receiving
tax relief
• Plus employer pension contributions
• Less payments received from lump sum death benefits.
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Threshold income
• ‘Net pay’
– which is total taxable income (chargeable to income tax) reduced by reliefs such
as trading and share loss relief
• Less payments received from lump sum death benefits.
• Salary sacrifice arrangements need to be added in if started or
increased on or after 9th July
– Includes those that have annual opt in
• Ignore flexible income adjustments
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Money purchase annual allowance
• Can’t reduce AA below £10,000
• The reduction only applies to the alternative AA of £30,000 that can
be used against DB benefits
• The alternative AA can be reduced to nil for those with adjusted
income over £210,000
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LTA Protections
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Individual protection 2014
• Protect between £1.25m and £1.5m
• Applications available until 5th April 2017
• Valuations needed at 5th April 2014
– Don’t leave it too late
• Backdated valuations can be hard to get
• Individual lifetime allowance granted
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Fixed protection 2016
• Details still to be finalised – application online, no certificate
– Legislation in Finance Bill 2016
• Protect LTA of £1.25m
• No further contributions
• No relevant benefit accrual
• Can be lost – be careful of compensation payments
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Individual protection 2016
• Still awaiting finalised details – application online, no certificate
– Legislation in Finance Act 2016
• Protect between £1m and £1.25m
– Value at 5th April 2016
• Individual lifetime allowance granted
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Any other issues?
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Talbot and Muir
• Talbot and Muir Limited provides administration to Self Administered Pension Schemes
• Talbot and Muir SIPP LLP provides administration to Self Invested Personal Pensions.
• T M Trustees Ltd provides independent trustee service.
• Whilst we provide technical information, we are not authorised to provide any form of financial or investment advice.
• We try to ensure that the information provided is correct, but we do not give any express or implied warranty as to its
accuracy. The information contained in this presentation does not constitute financial or other professional advice
and is based on our interpretation of the relevant HMRC guidelines, which are subject to change. We do not accept
any liability for error or omission.
• Talbot & Muir is the trading name for Talbot and Muir Limited (company number 02869547).
T M Trustees Ltd (a limited company registered in England and Wales under company number 03094287) whose
registered office is situated at 22-26 Clarendon Street, Nottingham NG1 5HQ
• Talbot and Muir SIPP LLP (company number OC306490), is registered in England, registered address 22 Clarendon
Street, Nottingham, NG1 5HQ and is authorised and regulated by the Financial Conduct Authority
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