A probe by HM Revenue & Customs was behind the halting of a pooled fund flexibility option run by Axa Wealth, which could allow people to avoid tax.
The option will be withdrawn from the Family Suntrust product that Axa Wealth runs with effect from 2 September and was announced in a note to advisers late last month.
Additionally, the Retirement Wealth Account and Family Suntrust - Sipps that the firm was running - will close to new business at the same time, which Axa said in the note was in preparation for the sale of the Axa Wealth businesses later in the year.
In the note, Axa Wealth said to advisers and investors: “You may be aware that we have been subject to an enquiry from HM Revenue & Customs as to how the flexibility option works.
“Although we have worked with, and provided supporting information to HMRC, they have recently indicated to us they are still considering their position.”
The note explained Axa Wealth had hoped, given time, it would be able to work with HMRC to agree an understanding of the flexibility option.
But given the upcoming sale the firm’s management are no longer in a position to take a longer term view and as such had decided to withdraw the feature.
It added the amendment did not have a retrospective effect on allocations previously made.
According to Axa Wealth, 3,000 clients hold the Retirement Wealth Account Sipp and there are just over 1,000 Family Suntrust Schemes with 3,000 participants.
The Retirement Wealth Account has over £1bn funds under management.
Martin Tilley, director of technical services at Sipp provider Dentons, explained the product has been used where a person has gone over the lifetime allowance for their pension - currently £1.25m - and can be used to avoid the 55 per cent tax charge that would apply by passing money down the generation to another family member.
For example, if a couple had a £3m fund and get £200,000 worth of growth, it is not split between the members like it would be when it is an allocation, but is mainly given to the children so the parent’s funds do not get larger and do not pay tax.
Mr Tilley said: “Under any reading and interpretation of the regulations and the law that we have come up with that is something called value shifting - that is shifting value from one person to another.
“Basically the Treasury is losing out, so we think it is a mechanism for avoiding tax - it appears that the revenue have been investigating this and may have now come up to the same conclusion.”
He added that it would be the next generation - the daughter or son who received the money from the parents - who would be liable for the tax charge because it is a shifting of value.
A spokesperson for Axa Wealth: “We’re closing the Retirement Wealth Account (self-invested option) and Family Suntrust to new business, with effect from 2 September 2016, in preparation for the sale of the AXA Wealth businesses, which are due to take place in Q4 2017.
“At the same time, the Family Suntrust pooled fund Flexibility Option will be removed. We had hoped that, given time, we would have been able to work with HMRC to agree an understanding. However given the upcoming sale of the AXA Wealth businesses, we are no longer in a position to take a longer term view.”
A spokesperson for HMRC told FTAdviser: “We don’t comment on identifiable taxpayers.”
ruth.gillbe@ft.com
