Normally the words “stealth budget” mean the introduction of a sneaky bit of taxation which does not seem terribly obvious from the Chancellor’s speech and only appears on closer examination of the papers once he has sat down. That is not the sort of stealth budget we saw today. Since the Chancellor announced the end of Spring Budgets and Autumn Statements, to be replaced by the bold, radical and new Autumn Budget and Spring Statement, we knew that 8 March 2017 would not only be Philip Hammond’s first Budget but also his last Spring Budget. However from the muted comments in the press and lack of the usual wishlists from the Pensions Industry (well any industry actually) you would have been hard pressed to know that today was Budget day. Perhaps that is due to Brexit and Government spats with the Lords consuming all news outlets or maybe a bit of apathy about the, albeit relatively positive, noises from the OECD and OBR re the state of the economy. However once the Chancellor stood at the despatch box and delivered his speech (and we got to check the Treasury papers to see if anything truly stealthy had been included) we got the main event.
So what was there to interest the pensions industry? Actually not a lot. For many budgets the industry has asked for stability and to stop the tinkering and in the main, for once, that is what we have got. That is not to say that the Chancellor left things completely alone.
At the Autumn Statement the Chancellor made a commitment to tackling pension scams which resulted in a consultation paper. Whilst the full outcome of the responses has yet to be seen the Chancellor took steps to address one problem area – overseas transfers. Long seen as a problem area for scams and potential tax avoidance, the Chancellor announced that from midnight on 8 March a 25% charge will be made on transfers to QROPS. This charge will be targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction. Exceptions will apply to the charge, allowing transfers to be made tax-free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area. So what are the new rules? These will be confirmed in the Finance Bill 2017 but papers published after the budget set out the following:
- Transfers to QROPS requested on or after 9 March 2017 will be taxed at a rate of 25% unless at least one of the following apply:
- both the individual and the QROPS are in the same country after the transfer
- the QROPS is in one country in the EEA (an EU Member State, Norway, Iceland or Liechtenstein) and the individual is resident in another EEA after the transfer
- the QROPS is an occupational pension scheme sponsored by the individual’s employer
- the QROPS is an overseas public service pension scheme and the individual is employed by one of the employer’s participating in the scheme
- the QROPS is a pension scheme established by an international organisation as defined in regulations to provide benefits in respect of past service and the individual is employed by that international organisation
- UK tax charges will apply to a tax-free transfer if, within five tax years, an individual becomes resident in another country so that the exemptions would not have applied to the transfer
- UK tax will be refunded if the individual made a taxable transfer and within five tax years one of the exemptions applies to the transfer
- The scheme administrator of the registered pension scheme or the scheme manager of the QROPS making the transfer is jointly and severally liable to the tax charge and where there is a tax charge, they are required to deduct the tax charge and pay it to HMRC. This applies to scheme managers of former QROPS that make transfers out of funds that have had UK tax relief, if the scheme is a QROPS on or after 14 April 2017 and at the time the transfer to the former QROPS is received
- Payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident
Things just got a lot more complex!
The self employed, well those with income over £16,000, will feel the pinch with increased Class 4 NIC contributions. Is there a case for reducing the impact of these with increased pension contributions?
Long Term Care was a major theme with increases announced for the social care budget in England. Also announced was a green paper on funding for social care. There was some speculation that changes that might be announced would be a “Care ISA” and a second bite at tax free cash from pension to contribute to care costs. Could these feature in the green paper?
One request from the industry that did fall on deaf ears was a request to ditch the reduction in the Money Purchase Annual Allowance. That will go ahead as planned.
Finally, not a change but a comment from the government on the success of pension freedoms. The amount of money taken out of pension arrangements using pension freedoms is much higher than anticipated. Good news for people wanting access to their pension (and the Treasury of course).
And at the end of this we get to look forward to another budget in the autumn. Can you get too much of a good thing?