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Compensation & Benefits: Pensions reforms – new disclosure rules for tax avoidance schemes

1 February 2012 |

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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Disclaimer

Content is for general information purposes only.  The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice.  If you require assistance in relation to any issue, please seek specific advice relevant to your particular circumstances.

Disclaimer

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

Circular 230 disclosure

To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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