experienceandexpertise summer budget 2015 claire trott director, head of pensions technical

experienceandexpertise

Summer Budget 2015

Claire Trott

Director, Head of Pensions Technical

experienceandexpertiseCopyright 2014

Agenda

• Death benefits

• Alignment of PIPs

• Taper of annual allowance for high earners

• Lifetime allowance and protections


Death benefits


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


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


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


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.


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


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


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


Alignment of PIPS


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


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


2014 2016Apr Jul Oct 2015 Apr Jul Oct 2016 Apr

Summer Budget 2015

PIP 2 - £40,000

Post alignment tax yearPre alignment tax year

PIP 1 - £40,000

PIP 3 - Nil

Maximum already paid


2014 2016Apr Jul Oct 2015 Apr Jul Oct 2016 Apr

Summer Budget 2015

PIP 2 - £20,000


PIP 1 - £40,000

PIP 3 – Max of £20,000

Some contributions paid


2015 2016Apr Jun Aug Oct Dec 2016 Apr

Summer Budget 2015

PIP 1- Nil


PIP 2 - Max of £40,000

Tax year PIP - Nothing paid


2015 2016Apr Jun Aug Oct Dec 2016 Apr

Summer Budget 2015

PIP 1- £40,000


PIP 2 - Max of £40,000

Tax year PIP – Maximum Paid


Taper of Annual allowance


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


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.


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


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


LTA Protections


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


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


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


Any other issues?


• 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

Talbot and Muir

experienceandexpertise summer budget 2015 claire trott director, head of pensions technical

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