Finance Bill

Written evidence submitted by Hargreaves Lansdown (FB15)

Summary

I would like to suggest a minor technical amendment consequential on the April 2016 drop in the lifetime allowance from £1,250,000 to £1,000,000. This would ensure the beneficiaries of those who died before this lifetime allowance reduction would not suffer a retrospective increase in taxation.

It would also be in line with provisions made in connection with the 2014 and 2012 reductions in the lifetime allowance.

Detail

1. Section 19(4) will currently insert new subsection 5E into section 218 of Finance Act 2004.

(5E)Where benefit crystallisation event 7 occurs on or after 6 April 2016 by reason of the payment of a relevant lump sum death benefit in respect of the death of the individual during the period consisting of the tax year 2014-15 and the tax year 2015-16, the standard lifetime allowance at the time of the benefit crystallisation event is £1,250,000.

2. New subsection 5E will mean that that if a relevant lump sum death benefit is paid after the lifetime allowance has reduced to £1,000,000 in respect of a death when the lifetime allowance was £1,250,000 then the relevant lump sum death benefit is measured against a lifetime allowance of £1,250,000 instead of against a lifetime allowance of £1,000,000. Similar provisions are made by section 5C and 5D to cover the lifetime allowance reductions to £1,500,000 and £1,250,000.

3. In April 2015 two new post-death benefit crystallisation events were introduced. These are;

5C - The designation, on or after 6 April 2015 but before the end of the relevant two-year period, of relevant unused uncrystallised funds as available for the payment, to a dependant or nominee of the individual, of (as the case may be) dependants' flexi-access drawdown pension or nominees' flexi-access drawdown pension, and

5D - A person becoming entitled, on or after 6 April 2015 but before the end of the relevant two-year period, to a dependants' annuity or nominees' annuity in respect of the individual if-

o (a)the annuity is purchased using (whether or not exclusively) relevant unused uncrystallised funds, and

o (b)the individual died on or after 3 December 2014

4. For consistency, the new subsection 5E should be extended to cover benefit crystallisation events 5C and 5D in the same way as for benefit crystallisation event 7. One way of doing so would be to amend new subsection 5E so that it becomes;

(5E)Where benefit crystallisation event 7, 5C or 5D occurs on or after 6 April 2016 in respect of the death of the individual during the period consisting of the tax year 2014-15 and the tax year 2015-16, the standard lifetime allowance at the time of the benefit crystallisation event is £1,250,000.

5. An alternative longer drafting which would achieve the same result whilst retaining the description of the affected benefit crystallisation event would be;

(5E) The standard lifetime allowance at the time of the benefit crystallisation event is £1,250,000 if;

benefit crystallisation event 7 occurs on or after 6 April 2016 by reason of the payment of a relevant lump sum death benefit in respect of the death of the individual during the period consisting of the tax year 2014-15 and the tax year 2015-16,

benefit crystallisation event 5C occurs on or after 6 April 2016 by reason of the designation, on or after 6 April 2015 but before the end of the relevant two-year period, of relevant unused uncrystallised funds as available for the payment, to a dependant or nominee of the individual, of (as the case may be) dependants' flexi-access drawdown pension or nominees' flexi-access drawdown pension in respect of the death of the individual during the period consisting of the tax year 2014-15 and the tax year 2015-16, or

benefit crystallisation event 5D occurs on or after 6 April 2016 by reason of a person becoming entitled, on or after 6 April 2015 but before the end of the relevant two-year period, to a dependants' annuity or nominees' annuity in respect of the individual if-

(a)the annuity is purchased using (whether or not exclusively) relevant unused uncrystallised funds, and

(b)the individual died on or after 3 December 2014

6. The first, shorter, draft would be clearer and is therefore our preference.

About Hargreaves Lansdown

We are a leading provider of investment management and pension products and services to private investors and employers in the UK. Founded in Bristol by Peter Hargreaves and Stephen Lansdown in 1981, today we administer over £60.3 billion of client assets on behalf of 822,000 investors (30th April 2016). We are listed in the FTSE 100 as one of the largest companies in the UK.

We have a diversified business with an established reputation for providing exceptional service and information, and value for money investments and products, to private and corporate investors. Our flagship service, HL Vantage is the largest and most popular direct to consumer investment and pension supermarket in the UK. We are the UK’s largest annuity broker, the UK’s largest direct-to-consumer Self Invested Personal Pension and drawdown provider.

For more information www.hl.co.uk/about-us

July 2016

 

Prepared 6th July 2016