Following on from the announcements in April of this year regarding the restriction of higher rate tax relief on pension contributions for those earning more than £150,000, HM Revenue and Customs (HMRC) has updated its guidance on the disclosure of tax avoidance schemes to include a new “hallmark” to cover tax relief for pensions.
The new hallmark came into effect on 1 September 2009 and relates to the recently introduced “special annual allowance charge”, an anti-forestalling provision brought into effect to prevent higher rate taxpayers making larger than normal pension contributions to benefit from the current higher rate tax relief before it is abolished in 2011/2012. This special tax charge will be imposed to restrict income tax relief to 20% for individuals who earn £150,000 or more and who increase their contributions above their normal pattern of contributions before 6 April 2011.
The updated guidance also includes details of a transitional rule, which sets out that disclosure of schemes is required where the event that triggers a disclosure occurs between 23 April to 31 August 2009 inclusive.
Commentary
The disclosure rules are broadly defined and apply to both promoters of tax avoidance schemes and their clients in certain circumstances. However, as the guidance makes clear, attempts to avoid the special annual allowance charge by salary sacrifice arrangements whereby the salary sacrificed is then made up in employer pension contributions do not trigger disclosure obligations – such sacrifices are, in any event, ineffective in reducing salary for the purposes of the new legislation.
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