The Government’s plans to limit the lifetime allowance on pension contributions could lead to a crackdown on family pension schemes, experts predict.
Proposals to lower the lifetime allowance from £1.25m to £1m were revealed in the last Coalition budget and are due to take effect in April 2016. The Conservatives also want to taper the annual allowance for people earning £150,000 or more.
Old Mutual Wealth pensions technical manager Jon Greer says the Government’s commitment to spend the saving on raising the inheritance tax threshold means arrangements that work around the allowance are likely to be in the spotlight.
He says: “It is possible to set up family arrangement pension schemes so that someone with a large pension fund that might exceed the lifetime allowance, could put it into one of these arrangements and hive off the growth off one member’s fund into other member’s pension.
“It seems like an obvious area where the Revenue might start looking at.”
AJ Bell head of platform technical Mike Morrison says: “Should there be a lower lifetime allowance, it seems logical that the Revenue will look at the methods people are using to get around breaching it.”
But Talbot and Muir head of technical support Claire Trott thinks it will be a step too far for HMRC.
She says: “They’ve been running for so long now that it would be difficult for HMRC to try and stop them. The time, cost and effort to look into them makes it unlikely.”