More consultation on tax simplification
You may be surprised that this has happened so soon after the publication of what most people would have thought was a pretty comprehensive Finance Act, but it’s par for the course really to tie up loose ends with Statutory Instruments in this way. The Finance Act 2004 has got all the legislation in it that we need to put the new tax regime for pensions in place from 6th April 2006 and these proposed regulations sort of contain much of the detail on how the simplified regime will actually operate in practice. The issues, while a bit on the dry side, are important particularly as many of them relate to the new reporting and record-keeping stuff that employers and pension providers running pension schemes are going to have to sign up to.
In fact the Revenue notice accompanying the eighteen consultation documents claims “We have made some substantive changes to the ‘provision of information’ draft regulations”. The Revenue has also said it wants to keep the ‘crystallisation process’ (retirement to you and me) as simple as possible for most taxpayers given that the vast majority will never save enough to go over the lifetime allowance and get taxed by the new ‘lifetime allowance charge’. The trouble is they can’t make it too loose a requirement because they really do need to ensure that when a ‘lifetime allowance charge’ does become due it doesn’t slip through the net. Basically, if you’re going to the trouble of bringing a new tax in you really do need to make sure the people it’s aimed at end up paying it.
The problem here is that every time someone ‘crystallises’ some of their pension savings there will need to be checks done to see how the new bit of pension sits with all the other bits that person may have elsewhere. In these days of fragmented pension histories and no central record of it all that’s a toughie. It will require a fair bit of legislation to make sure the correct exchanges of information between individuals, pension schemes and pension providers take place at the right time every time and I’ve always wondered how that would all actually happen in practice.
Well, we won’t have long till we find out I guess. The consultation period for these regulations finishes on the 5th of November 2004. So it looks like we’re heading for yet another big pile of paper about pension laws landing on our desks and all in time for Bonfire Night. Marvellous! Let’s hope it doesn’t rain…
11 August 2004
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