HMRC has updated its above 2016-17 guidance
HMRC has updated its above 2016-17 guidance. This gives information on things such as:
• The Lifetime Allowance.
• The Annual Allowance.
• The Money Purchase Annual Allowance.
• The income tax percentage charged on payments from a pension scheme.
The updated guidance is a result of the enactment of the Finance Bill on 15 September 2016. Schedule 5 of Finance Act 2016 made a change to the rate of income tax charged in the circumstances that pension is taken as a lump sum early from a registered scheme because of ill-health – the “serious ill-health lump sum”. The change took effect the day after enactment with the result:
• If the scheme pays a serious ill-health lump sum to a member aged 75 or over and the payment is made on or before 15 September 2016, 45% tax is due.
• If the scheme pays a serious ill-health lump sum to a member aged 75 or over, and the payment is made on, or after 16 September 2016, the payment is taxed at the member’s marginal rate of tax.
The change in tax treatment was reported in HMRC’s Pension schemes newsletter 81 – September 2016. This said:
• Pension schemes should stop reporting the serious ill-health lump sum and report via Real Time Information (RTI).
• However, the RTI specifications will not be updated until December 2016 (which is probably far too late for most payroll software products to be able to include this change in 2016-17 when they are already working on 2017-18!).
Employers/schemes that are affected should use the workaround in newsletter 81, section 1.