The Treasury giveth and the Treasury taketh away perhaps. The generosity and indeed boldness of Chancellor Jeremy Hunt removing the Lifetime Allowance shocked many advisers and those in the pension industry more generally.
The reform and indeed changes to the annual allowance and money purchase annual allowance were designed to encourage more people to work longer and to help with issues concerning doctors, the NHS and tax bills, which were disincentivising medical consultants from continuing to work or indeed returning to work after retirement.
Here comes the kicker. There are now plans, published on the government website by HMRC to reduce the amount of wealth inheritable from a pension and it comes in a detailed consultation regarding the LTA.
We quote the key passage from the consultation which was a little lacking in some trade coverage.
"The taxation of pension income will be through the existing income tax structure for pension income. Authorised lump sums and lump sum death benefits will be tested against a new threshold, set at the same level as the present Lifetime Allowance, £1,073,100. Individuals will not pay tax where lump sums do not take them above this level. Any lump sums paid above this level will be taxed at the individuals’ or beneficiaries’ marginal rate."
Interestingly the story took a little time to surface and there is a bit of sub plot. But here first of all is the Daily Mail’s take.
Now Treasury 'plans tax raid on inherited pension pots' as ability to inherit them tax free could be scrapped by ministers. (It also merited the front page of the Express).
The Mail report noted that “Earlier this week, the Government published proposals that from next April could see beneficiaries charged income tax on ongoing withdrawals from pension pots they inherited.”
It also linked this move to news of a very high IHT take (as reported here in Money Marketing) and suggested it was the Treasury trying to clawback tax from the LTA move, which seems a fair assessment.
I have seen the broad ‘warning style’ headlines come in for some criticism from advisers because the plans are currently out to consultation.
FTAdviser carries this warning for pension consultants LCP who of course, have the advantage of having former pension minister Steve Webb as a high profile spokesperson.
The website quotes their view - “LCP stated that the government consultation, which was published as part of a bundle of tax consultations on July 18, could result in ordinary taxpayers having to pay income tax where they inherit an untouched pension pot.
“Whereas the LTA applies only to those with the largest pots, the new proposals would apply to anyone who inherited an untouched pension from a loved one who died under the age of 75, regardless of their pot size.”
The reports note that the change could come in from April 2024, but also that the Treasury, under fire not just the proposal itself, but for bundling it with lots of other changes, is now stressing it is only proposal.
We quote the Mail again – and clearly some in the Treasury are a little taken aback - "a Treasury source said the plans were 'not a done deal' and were merely 'one suggested approach' on how to tax lump sums following the end of the LTA."
For those who care about these things, that does not read as a quote from the main Treasury press office but perhaps from a more 'political' media special adviser who will very much have the Chancellor's ear. (Just my view of course)
It would need legislation and the Government does tend to notice the front pages of normally friendly tabloids.
One has to wonder if such an unpopular move among a key Conservative-voting demographic will happen before the election.
On Twitter, advisers such as David Penney, of Penney, Ruddy and Winter notes a difference between the consultation around LTA abolition that contains the proposal and a newsletter with a range of related draft legislation issued a couple of days later. The latter document despite outlining lots of changes mentions the key reform almost as an afterthought.
New Model Adviser reports that the FCA has warned Finfluencers that memes and TikToks promoting investments are regulated and must include the requisite warnings. It will be interesting to see if any more serious action is taken if problems continue.
