05 Oct Pension tax changes
Posted at 05:00h
in Advice Centre
As part of the Budget 2016 measures, the government announced a number of small changes to the pension tax rules to ensure that they operate as intended following the introduction of pension flexibility in April 2015.
The changes included removing the requirement that a serious ill-health lump sum can only be paid from an arrangement that has never been accessed and replacing the 45% tax charge on serious ill-health lump sums paid to individuals who have reached age 75 with tax at the individual’s marginal rate.
Other measures included:
- enabling dependents with drawdown or flexi-access drawdown pension who would currently have to use all of this fund before age 23 or pay tax charges of up to 70% on any lump sum payment, to continue to access their funds as they wish after their 23rd birthday;
- removing the rule on paying a charity lump sum death benefit out of drawdown pension funds and flexi-access drawdown funds where the member dies under the age of 75 because the equivalent tax-free payment may be made as another type of lump sum death benefit;
- enabling money purchase pensions in payment to be paid as a trivial commutation lump sum;
- enabling the full amount of dependent’s benefits to be paid as authorised payments where there are insufficient funds in a cash balance arrangement when the member dies.
These measures took effect on 16 September 2016, the day after the date of Royal Assent to Finance Bill 2016. HMRC’s guidanceRates and allowances: pension schemes
has been updated to reflect the change in the serious ill-health lump sum charge.