Income tax exemption for pensions advice

HMRC has put out a policy paper introducing an income tax exemption to cover the first £500 worth of pensions advice arranged by an employer and provided to an employee in a tax year, which is applicable to advice not only on pensions, but also for the first time on the general financial and tax issues relating to pensions

The changes were announced at Budget 2016 and replace existing provisions which limited the exemption solely to pensions advice and was capped at £150 per employee per tax year. They come into effect on and after 6 April 2017.

Legislation in Finance Bill 2017 will introduce a new exemption into Part 4 of the Income Tax (Earnings and Pensions) Act 2003.

The exemption will apply if the advice is made available to employees generally or to employees generally at a particular location. However, it will also be capable of applying when the pensions advice is tailored to the employee’s specific personal circumstances of nearing retirement either by age or ill health.

The legislation will achieve this by setting two alternative qualifying conditions. Condition A encapsulates the ‘availability’ conditions, and condition B allows the exemption where the employee has either reached the ‘minimum qualifying age’ or ‘ill-health condition’.

The exemption will apply to the first £500 worth of pensions advice provided to an employee in a tax year, whether the employer pays for or reimburses the employee for the cost of the advice.

The current exemption set out in Regulation 5 of the Income Tax (Exemption of Minor Benefits) Regulations 2002 will no longer be required and will be repealed.

Legislation for National Insurance purposes will be introduced following passage of Finance Bill 2017.

The changes are estimated to result in a £10m tax loss for 2017-18 and 2018-19, dropping down to £5m the following year and having a negligible impact by 2020-21.

Policy paper, Employer-arranged pensions advice exemption is here.

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