This update amends the guidance Disclosure of Tax Avoidance Schemes published in October 2008.
The amendment relates to a new hallmark concerning pensions tax relief. The aim of the hallmark is to secure disclosure of any schemes that seek to avoid the special annual allowance charge (SAAC) introduced in Finance Act 2009. The SAAC is an anti-forestalling provision which seeks to restrict pensions tax relief for those high income individuals who increase their savings above their normal pattern of savings ahead of 6 April 2011, when pensions tax relief for high income individuals will be restricted to the basic rate of tax.
The new hallmark comes into force on 1 September 2009. However, a transitional rule will require disclosure of schemes where the event that triggers a disclosure, under the normal rules, occurs between 23 April and 31 August 2009 inclusive.
NICs regulations mirror the tax primary and secondary disclosure legislation insofar as they apply to income tax. In this instance the avoidance of the SAAC would not create a NICs advantage and so there is no equivalent hallmark in the NICs regulations.
| Paragraph | Amendments |
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| Index | Insert after 7.9.8 “7.10 Hallmark 8: pensions 7.10.1 The legislation 7.10.2 About the hallmark- purpose 7.10.3 About the SAAC 7.10.4 About the hallmark –tests” Insert after 10.8 “10.9 Transitional reporting requirements for schemes notifiable under the pensions hallmark” |
| 1.4 What’s Changed | Add as a sixth bullet:
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| 1.5.2 Secondary legislation | Fourth bullet. After “SI 2008/2678” insert “and by SI 2009/2033” |
| 4. Flow chart | In the boxes headed “Test 4” and “Test 6” amend “7” to”8”. |
| At the end of section 7 insert new paragraph 7.10 “7.10 Hallmark 8: Pensions 7.10.1 The legislation Regulation 17A Arrangements are prescribed if- (a) they involve the accrual or expected accrual of benefits in a
pension scheme (within the meaning of section 150 of the Finance act
2004) to or in respect of a person; and
7.10.2 About the hallmark – purpose This hallmark applies is intended to capture and provide early warning of any schemes that seek to avoid the special annual allowance charge (SAAC). 7.10.3 About the SAAC The legislation providing for the SAAC is Section 72 and Schedule 35 of Finance Act 2009. The purpose of the SAAC is to prevent high earning individuals from obtaining tax relief on increases to their pension contributions or accrued benefits made to forestall the restriction of pensions tax relief to the basic rate with effect from 6 April 2011. The SAAC will apply only where the contributions:
The SAAC is an income tax charge for certain individuals on certain pension contributions and benefits accrued (“pension savings”). The charge applies to pension savings accrued in excess of a special annual allowance for individuals whose relevant income is £150,000 or more. The amount of the special annual allowance is normally £20,000 (£30,000 for those whose normal pattern of savings is irregular). The tax charge is intended to restrict relief on the excess to basic rate. It will therefore apply at a rate of 20% in the 2009-2010 tax year. It is intended that the way in which the rate of the tax charge is to be calculated for 2010-2011 to achieve the restriction to basis rate will be set out in secondary legislation in due course. The SAAC will not apply in respect of an individual’s normal pattern of regular pension savings, or the normal way in which their benefits are accrued before 22 April 2009. The legislation also enables a high income individual to ask their scheme to refund pension contributions that they have paid in the 2009-10 or 2010-11 tax year, which may otherwise create a liability to the SAAC. Such repayments are subject to a 40% income tax charge in 2009-2010, in effect a claw back of the tax relief. The rate of tax charge on refunds for the 2010-2011 tax year will be set in secondary legislation in due course. 7.10.4 About the hallmark – tests The hallmark is expressed largely in terms of the effect the arrangements seek to achieve rather than the way they seek to achieve that effect. The first leg of the hallmark in effect asks if the arrangements involve an individual making contributions to a pensions scheme or otherwise accruing, or expecting to accrue, benefits in a pension scheme. The second leg of the hallmark asks whether the main benefit of those arrangements is that the individual either does not incur the SAAC or incurs a lower SAAC than they would have done had they not entered into the arrangements. The types of arrangements that would fall within the hallmark include those where:
The first bullet will not apply to those whose relevant income (as defined for SAAC purposes) is reduced below £150,000 by; for example, a reduction in hours worked or bonuses received. A salary reduction in itself is unlikely to fall within the definition of “arrangements” (see 6.2.1 above) and even if it does, it would not amount to a ‘tax advantage’ within the definition in s.318(1)(a) FA 2007 (see 6.2.2 above). Such ‘arrangements’ are not notifiable. Nor will the first bullet apply to arrangements that reduce an individual’s taxable income without reducing their ‘relevant income’ for the purposes of determining a SAAC. For example, where taxable employment income is sacrificed in return for higher employer pension contributions under an agreement made on or after 22 April 2009, the sacrificed income is added back into the calculation of the £150,000 relevant income. Such arrangements would not have the effect of avoiding or reducing the SAAC and are not notifiable.” |
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| 10. When to disclose a scheme | At the end of section 10 insert new paragraph 10.9 “10.9 Transitional reporting requirements for schemes notifiable under the pensions hallmark A new hallmark for pension schemes is introduced with effect from 1 September 2009 as described in paragraph 7.10 above. For schemes where the event that triggers a disclosure falls on or after 1 September the time limits for notifying the scheme are the normal time limits described above. The event that triggers a disclosure is:
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