HMRC tax regime: benefits, reliefs and overseas schemes Flashcards
Q: From what age can pension benefits usually be taken?
A: Benefits can be taken from the normal minimum pension age, which is currently 55. However, it can be taken earlier on ill-health grounds or if the member has a protected pension age.
Q: In what forms can registered pension schemes pay out benefits?
A: Registered pension schemes can pay out benefits in the form of an income or as a lump sum.
Q: How much of the benefits can be taken as a PCLS?
A: When benefits are taken as a scheme pension, a lifetime annuity, or a drawdown pension, the member can take up to 25% of the value of the benefits as a PCLS (tax-free cash).
Q: What happens if an UFPLS is taken?
A: If an UFPLS (uncrystallised funds pension lump sum) is taken, the member does not receive a PCLS. However, typically 25% of the funds taken will be paid tax-free, and the remainder will be taxed as the member’s pension income via PAYE.
Q: How is pension income taxed once it is in payment?
A: Once in payment, pension income is taxed as the pensioner’s earned income via PAYE.
Q: What happens if a tax coding notice for a DC pension has not been issued by HMRC?
A: If a tax coding notice has not been issued by HMRC, the taxable portion of any flexible payment will be taxed using the PAYE system on a ‘month one basis’.
Q: How is the format in which death benefits can be received determined?
A: The format in which death benefits can be received is determined by whether someone is a dependant or a nominee/successor.
Q: What is the two-year window in relation to death benefits?
A: The two-year window is the time frame in which death benefits must be designated to an income-producing contract or paid out as a lump sum in the case of a lump-sum death benefit.
Q: Are lump-sum death benefits received in respect of a member who died prior to age 75 taxable?
A: No, any lump-sum death benefits received in respect of a member who died prior to age 75 is paid free of tax, provided the funds are paid out within the two-year window.
Q: How are lump-sum death benefits received in respect of a member who died after reaching age 75 taxed?
A: Any lump-sum death benefits received in respect of a member who died having reached age 75 is taxable. If the payment is made directly to the beneficiary, it is taxable as their pension income via PAYE. If the payment is made to an individual who is receiving it as a trustee or personal representative, it is subject to the special lump-sum death benefits charge of 45%.
Q: Are uncrystallised funds subject to a lifetime allowance test in the event of the member’s death before age 75?
A: Yes, any lump-sum death benefit in respect of uncrystallised funds is subject to a lifetime allowance test in the event of the member’s death before reaching the age of 75, provided the benefits are paid out within the two-year window.
Q: Can survivor’s pension or payments under a guarantee be commuted for a lump-sum death benefit?
A: Yes, survivor’s pension or payments due under a guarantee can be commuted for a trivial commutation lump-sum death benefit, which cannot exceed £30,000.
Q: Can a charity lump-sum death benefit be paid tax-free?
A: Yes, a charity lump-sum death benefit can be paid tax-free in certain circumstances if the member has no surviving dependants.
Q: Can a dependant receive a continuing income from a scheme pension?
A: Yes, a scheme pension may be set up to include a dependant’s scheme pension. Only a dependant can receive a continuing income from a scheme pension.
Q: How is the income received by a dependant from a dependant’s scheme pension taxed?
A: The income received by a dependant from a dependant’s scheme pension is taxed as pension income via PAYE.
Q: Are dependants, nominees, and successors taxed on income received from previously crystallised funds if the previous holder died before age 75?
A: No, dependants, nominees, and successors have no tax to pay on income received from previously crystallised funds if the previous holder died before age 75. However, if the income comes from uncrystallised funds, it is paid tax-free only if the funds are designated to provide the income within the two-year period.
Q: How is the survivor’s income taxed if the previous recipient died after reaching age 75?
A: If the previous recipient died having reached the age of 75, the survivor’s income is taxable as the recipient’s pension income via PAYE.
Q: How is the income received by a dependant from a drawdown fund or annuity prior to 6 April 2015 taxed?
A: The income received by a dependant from a drawdown fund or annuity prior to 6 April 2015 will continue to be taxed as the dependant’s pension income via PAYE.
Q: What is the time frame for distributing lump-sum death benefits to avoid inheritance tax?
A: Lump-sum death benefits must be distributed by the pension trust within two years of being informed of the member’s death to avoid inheritance tax.
Q: What is primary protection used for?
A: Primary protection is used to protect pension savings in excess of £1.5 million as at 5 April 2006.
Q: Are benefits above an individual’s personal lifetime allowance taken as a lump sum taxable?
A: Yes, any benefits above an individual’s personal lifetime allowance taken as a lump sum are taxable as the recipient’s pension income via PAYE.
Q: Can benefits continue to accrue under primary protection after 5 April 2006?
A: Yes, under primary protection, benefits can continue to accrue after 5 April 2006.
Q: What is enhanced protection used for?
A: Enhanced protection was available to protect benefits regardless of their value at 5 April 2006, with no benefit accrual between 6 April 2006 and 5 April 2023. Benefit accrual can restart from 6 April 2023 without enhanced protection being lost.
Q: What is the impact of enhanced protection on the lifetime allowance charge?
A: Under enhanced protection, the individual is not subject to a lifetime allowance charge regardless of the value of the benefits.
Q: What are the three forms of fixed protection?
A: The three forms of fixed protection are fixed protection 2012, fixed protection 2014, and fixed protection 2016.
Q: How are benefits protected under fixed protection?
A: Under fixed protection, the member’s benefits are protected up to the previous level of the lifetime allowance. For example, under fixed protection 2012, the member’s benefits are protected up to a value of £1.8 million.
Q: Are the rules for fixed protection similar to those for enhanced protection?
A: Yes, the rules that apply to fixed protection are similar to those that apply to enhanced protection. There must have been no relevant benefit accrual between 6 April 2006 and 5 April 2023, and benefit accrual can restart from 6 April 2023 without fixed protection being lost.
Q: What happens if there is relevant benefit accrual after 6 April 2023 for individuals with enhanced protection or fixed protection?
A: If an individual has successfully registered for enhanced protection or one of the fixed protections after 15 March 2023, there must be no relevant benefit accrual on or after 6 April 2023, or the protection will be lost.
Q: What is individual protection used for?
A: Individual protection 2014 and individual protection 2016 give the individual a protected lifetime allowance equal to the value of their pension savings on 5 April 2014 or 5 April 2016, respectively, subject to maximum limits.
Q: Can further contributions and benefit accrual take place under individual protection?
A: Yes, under individual protection, further contributions can be made and/or further benefit accrual can take place.
Q: Can a PCLS (pension commencement lump sum) in excess of 25% of the lifetime allowance be protected?
A: Yes, a PCLS in excess of 25% of the lifetime allowance can be protected, but there are different methods of protecting the entitlement under primary and enhanced protection.
Q: Can an individual protect a PCLS that exceeds 25% of the value of the benefits where the benefits are less than the lifetime allowance?
A: Yes, an individual can protect a PCLS that exceeds 25% of the value of the benefits where the benefits are less than the lifetime allowance.
Q: Is the fund of a registered pension scheme subject to income tax?
A: No, the fund of a registered pension scheme is free of income tax.
Q: Is capital gains tax applicable to gains in a registered pension scheme?
A: No, capital gains tax does not arise on gains in a registered pension scheme. However, there is no allowance for losses.
Q: Why are various charges imposed on unauthorised payments from a registered pension scheme?
A: Various charges are imposed on unauthorised payments from a registered pension scheme to prevent abuse of the tax privileges given to such schemes.
