Personal Pension  

Gov’t U-turns on tax relief for mis-sold pensions redress

The Treasury has ruled out abolishing tax relief on compensation for mis-sold pensions, citing the number of outstanding claimants and the cost that could be incurred by the Exchequer if this relief was abolished as planned in 2017.

Proposals to remove the relief were included within a consultation in May of this year, which followed a review by the Office for Tax Simplication of all tax reliefs offered within the UK.

Of 1,042 reliefs originally highlighted by OTS, 155 were subjected to detailed scrutiny and 43 were put forward for removal. Seven of these were deemed to be no longer relevant and were removed as part of Finance Bill 2011, with the remaining 36 being put to consultation for removal as part of Finance Bill 2012.

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In its response to the consultation, the government confirmed that it will fully abolished 28 reliefs and will “partially abolish” four reliefs, including mineral royalities, deeply discounted royalities and ‘disadvantaged areas’ including stamp duty and stamp duty land tax.

HM Treasury has also confirmed that “for exceptional reasons” it will not abolish four of the reliefs as planned, including the relief on compensation for mis-sold pensions.

The government’s response document says: “This measure gives relief from both income tax and capital gains tax on compensation payments made in connection with personal pensions mis-sold as a result of bad advice given at least partly between 1988 and 1994.

“Repeal of this relief was subject to all relevant compensation payments being made.”

The Treasury claims that new evidence was presented during this consultation by a number of companies and representative bodies and it believes approximately 25,000 people have yet to receive final compensation payments.

According to the response paper, it will take approximately 30 years to complete these last payments “assuming the relief is not repealed”.

The government said in its response: “This is because many payments have been deferred for a number of years to be paid when pension policies mature.

“It was also argued that repealing the relief would create significant administrative costs for both those receiving payments and providers.

“Finally, it was suggested that, if the repeal went ahead in 2017 as proposed, early settlement of cases could lead to a significant reduction in tax receipts for the five years before the repeal came into effect.

“The abolition of this relief was subject to all relevant compensation payments being made. Given the number of outstanding claimants and the cost that could be incurred by the Exchequer if this relief was abolished in 2017, the government has decided that this relief should not be abolished.”

The consultation received 78 responses from individuals, businesses and representative bodies, with a wide range of arguments being presented for either retaining or delaying the repeal of 22 of the 36 reliefs, according to the Treasury.