Personal PensionJul 22 2015

HMRC could ditch fixed protection advanced applications

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HMRC could ditch fixed protection advanced applications

HM Revenue and Customs has confirmed several of the pension changes proposed by the chancellor in recent Budgets, including cutting the lifetime allowance from April 2016 and consulting on changes to fixed and individual protection.

The government department is looking into removing the need to apply for fixed protection, changing the deadline for individual protection to those who have accumulated a pension pot over £1m.

Fixed protection allows savers who have exited a scheme and have a pension pot which is valued between £1m and £1.25m to protect the value of their pension pot at the higher level, as they cannot accrue any further benefits in that scheme.

Currently, individuals who want to apply for fixed protection have to do so before the tax year end that it starts in.

Meanwhile, individual protection allows savers, who reckon pensions will be valued over the lifetime allowance when they take their benefits, a personalised allowance based on the value of the pension.

For example, those with a pension pot of £1.4m can get individual protection on that based on the 2014 limit of £1.5m, rather than the existing £1.25m limit.

Currently, those wanting to apply for individual protection have to do so by three years after the tax year of the year it applies in.

Martin Tilley, director of technical services at Dentons Pension Management, explained that the actual process for application for protection is expected to be published later this summer, which should give time for protection options to be considered with those clients that might be affected prior to next April.

“The document also puts pay to the campaigners, who had seen the silence on the reduction in the lifetime allowance in the July Budget as a sign that in fact this might be removed, as had been forecast by some commentators,” he added.

Claire Trott, head of pensions technical at Talbot and Muir, said that consideration of the application process for fixed and individual protection is a clear move away from what HMRC have previously done with set deadlines.

“It would appear that there may be no need to apply for fixed protection in advance, just when it is going to be relied on.

“This shouldn’t be too much of a problem because there is no need for a valuation at 5 April 2016, they would just need to confirm that they haven’t breached the accrual limits and haven’t made any contributions.

“The removal or extension of the application deadline for individual protection could be more of an issue because in order to rely on it, a valuation or benefit calculation is needed as at the 5 April 2016 and this could be increasingly hard to get the longer it is left.”

She noted that even the current three year limit can seem a long time to look back when there are assets that do not have a published price, such as commercial property.

The HMRC update also confirmed that taxation at the recipients marginal rate of tax of death benefits paid where the deceased was over age 75 from 6 April 2016..

The legislation for these changes is expected to be included within the Finance Act. The Finance Bill received its second reading in the House of Commons yesterday (21 July) and is expected to move to the committee stage on 8 September.

peter.walker@ft.com