Overview

The Taxation of Pensions Bill makes changes to the UK tax system concerning pensions, aiming to increase flexibility for individuals accessing their pension funds while addressing potential tax avoidance. Key changes include altering the taxation of lump sums and introducing new rules around flexible access to pension funds and annual allowances.

Description

The bill introduces several key changes:

Pension Flexibility

The bill abolishes the annual cap on pension drawdown for "flexi-access drawdown funds," allowing for more flexible access to pension savings. It also introduces new rules for annuities, including removing restrictions on annuities purchased after April 6, 2015.

Tax Charges on Lump Sums

The bill reduces the tax rate on certain lump sum death benefits from 55% to 45% for those who died on or after April 6, 2015. This applies to special lump sum death benefits and serious ill-health lump sum benefits.

Death of Pension Scheme Member

The bill extends drawdown benefits to nominees and successors of deceased scheme members under specific conditions. It also includes provisions about the taxation of death benefits for beneficiaries.

Annual Allowances

The bill modifies the annual allowance charge calculation. For individuals who have flexibly accessed their pension rights, it introduces an alternative calculation method with a £10,000 threshold for money purchase arrangements.

Miscellaneous Amendments

The bill contains various other amendments related to pension commencement lump sums, trivial commutation lump sums, small pot lump sums, and lifetime annuities.

Overseas Pensions

The bill extends certain provisions concerning the tax treatment of pensions to overseas pension schemes, providing further clarity and regulation.

Government Spending

The exact impact on UK government spending isn't specified in the bill text. The reduction in the tax rate on certain lump sum death benefits is likely to reduce government revenue, while the new rules on flexible access and annual allowances might affect revenue in unpredictable ways depending on individual choices.

Groups Affected

• Pensioners: Increased flexibility in accessing pension funds and changes to tax rates on lump sums.
• Beneficiaries of deceased pensioners: Changes to the taxation of death benefits and the ability to access funds.
• Pension scheme administrators: New administrative responsibilities for reporting and providing information.
• HM Revenue and Customs (HMRC): New regulations and requirements for tax collection and enforcement.
• Individuals with overseas pensions: Extended tax regulations applying to overseas pension schemes.

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