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Welcome to the AdviserMap Blog - the UK's only Blog solely for Solicitors, Financial Advisers and Accountants. Here, professional advisers can add their own content to AdviserMap, and so further improve their visibility. There are no rules as to what you can post. If you disagree with something, by all means challenge the opinion. However, please have respect for the other person. Our team will remove any posting that they deem to be offensive.
Monday, April 10, 2006Pensions Tax Simplification - What Can You Do Now?
The 6th of April 2006 saw the introduction of A-day - or pensions tax simplification. This introduced a single set of rules for all registered pension schemes in the UK. The new rules mean that it is now possible to:
- take 25% tax-free cash from any type of pension arrangement, including protected rights
- take pension benefits from age 50, increasing to age 55 by the 6th of April 2010
- contribute up to 100% of your earnings each tax year and receive income tax at your highest marginal rate, up to an annual allowance limit (starting at £215,000 in the 2006/07 tax year
- make an unlimited pension contribution in the year you decide to take pension benefits (could be useful to reduce the taxation applied to proceeds from the sale of a business on retirement)
- take tax-free cash and then elect to draw a nil-income from the remaining pension fund, leaving it invested with the potential for future capital growth
- defer using your pension fund to purchase an annuity at age 75 for the first time, using the alternatively secured pension (ASP) option
- use your pension fund to invest in unquoted shares and assets that are already owned by the pension scheme member (since the removal of rules on 'connected parties' transactions)
- an extension of the definition of 'member' and 'sponsoring employer' to include ex-members and former employers - in order to avoid abuse of the tax rules where value is shifted to an ex-member of a pension scheme
- the introduction of another test against the lifetime allowance when the pension scheme member reaches age 75 and opts for alternatively secured pension
- an extension of the rules on primary protection to include pre A-day lump sum benefits
- changing the rules on enhanced protection to cater for the ongoing payment of life cover within the pension fund
- some measures to prevent the recycling of tax-free cash to obtain tax relief on this as a fresh pension contribution, although it will still be possible to some extent within certain limits
- tighter rules on the investment within Self Invested Personal Pensions (SIPPs) where the member is able to influence of advise on investments.
- bringing pension funds post age 75 into line with other pension funds in payment for inheritance tax purposes
Guidance on pension investments for member-directed pension schemes can be found at http://www.hmrc.gov.uk/pensionschemes/draft-guidance.pdf.
Guidance on recycling tax free cash to get tax relief as a fresh pension contribution can be found at http://www.hmrc.gov.uk/budget2006/recycling.pdf.
You can use AdviserMap to find an IFA who can provide professional independent financial advise on all aspects of pensions and retirement planning. Visit www.advisermap.co.uk today to find a local IFA who can help you get your retirement plans on track.
Please note that this is posted for general consideration only and he information contained herein is not to be acted upon without professional independent financial advice. Neither AdviserMap, Ciris Business Development Limited or any author can accept responsibility for any loss occasioned to any person no matter howsoever caused or arising as a result of or in consequence of action taken or refrained from in reliance of the contents hereof.
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