Standard Life PBR response - Tax avoidance loophole closed

The Revenue has closed a loophole which allowed pension funds to be passed on tax-free. Providers of small pension schemes are marketing scheme pensions as a way of passing pension money without tax

However, the Treasury has clamped down on what it regards as an abuse of the rules.

The rules will treat any increase in the pension rights of one member following the death of another member - if the two members were connected - as an unauthorised payment.

This means that there will be a tax charge of 70%, the same as applies to funds passed on via alternatively secured pension (ASP).

The funds passed on will also be liable to Inheritance Tax bringing the potential tax charge to 82%.

The charge will not apply if the scheme has 20 or more members and the funds arising following the member's death are evenly distributed amongst all members of the scheme.

This means that these rules will not impact on final salary schemes.

John Lawson, Head of Pensions Policy at Standard Life said: 'This is a logical move which brings scheme pension inheritances into line with alternatively secured pension (ASP) inheritances.

This creates a level playing field for ASP and scheme pensions.

However the tax rate of 82% applied to inheritances under both seems unnecessarily punitive, and will not do anything to encourage more pension savings.' If you would like to discuss this in more detail please contact: John Lawson, Head of Pension Policy, 0131 245 7548 Andrew Tully, Marketing Technical Manager, 0131 245 4051 or Paul KeeblePR ManagerStandard Life Assurance LimitedGround Floor5 Devonshire SquareLondonEC2M 4YD020 7872 44810771 248 6387 09 October 2007.

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