Consequences if the Pension LTA tax is re-introduced by Labour?

vincit_veritas

I wonder if there are any tax experts out there who could make an educated guess as to what might happen in the following situation;

It seems likely that Labour will get in at the next election.

If they re-introduce the Pension LTA tax, as is their stated intention, then what would be the situation for those who have crystalized all or part of their pension and are now heading towards the Age 75 test (BCE 5, 5A, 5B)?

Could Labour use the values originally recorded during the now defunct LTA crystallization events (BCE 1 to 4) or would that be regarded as "retrospective" taxation? 
or would any records under the original LTA tax rules be regarded as wiped clean now that the tax has been scrapped and any new Labour LTA tax likely have to start with a clean slate?

I realise this situation is uncertain and there can be no definitive answer, all I am looking for is a sense of what has happened historically when HMRC introduce (or in this case re-introduce) taxes that span a number of years. Has there been any similar precedent? 

MK62

It's anyone's guess tbh........we don't really know if Labour will win, and if they do, whether they will reintroduce the LTA in the same form (they have acknowledged issues with the LTA as it was/is, but, perhaps predictably, have blamed successive Conservative goverment's tinkering for those issues.....and they may have a point there).
That said, until we see a manifesto commitment (and even that is no guarantee) that they will bring the LTA back, and in what form, it's all speculation......my view is that it most likely would be brought back in some form, but not a straight reintroduction of the LTA as it is now (and yes, that is pure speculation on my part...😉)

dunstonh

If they re-introduce the Pension LTA tax, as is their stated intention, then what would be the situation for those who have crystalized all or part of their pension and are now heading towards the Age 75 test (BCE 5, 5A, 5B)?

They could retrospectively apply it or they may not.  

Also, do not underestimate the ability of unions to dictate Labour policy.  Teachers, Nurses, Rail workers, police and Fire Brigade have all come out saying they should get exemptions like the doctors.   

The LTA is bad taxation that generates a relatively small amount of revenue (especially with the cap on TFC).    Are they really going to risk taking on the unions if they just get into power on an issue that generates so little revenue?

And let us not forget that Labour had the LTA much higher than the conservatives and they also had the annual allowance much higher too.   The latter being one of the reasons the LTA was introduced (to combat FTSE100 companies remunerating their directors via the pension system).  

My view is that they are playing to the low income anti tory audience who think wealth is bad pre-election but will quietly let it go if they get in power.   However, they have taken an polling hit as they have failed to realise just how many people were heading for LTA breaches and many of them were traditional Labour voters.

I realise this situation is uncertain and there can be no definitive answer, all I am looking for is a sense of what has happened historically when HMRC introduce (or in this case re-introduce) taxes that span a number of years. Has there been any similar precedent? 

Historically, retrospective action is not taken in the majority cases.  However, the last Labour Government did apply some tax rules retrospectively.

Malthusian

Could Labour use the values originally recorded during the now defunct LTA crystallization events (BCE 1 to 4) or would that be regarded as "retrospective" taxation? 

Yes they could and no it wouldn't (unless you want to see it that way because you vote for the blues). 

It could be very similar to what happened when the Lifetime Allowance was brought in in the first place. See the rules on how pensions drawn before April 2006 are treated.

If you had pensions already in payment in April 2006, you weren't retrospectively taxed immediately, but if you "crystallised" a pension after April 2006, your pre-April-2006 pensions were brought into the Lifetime Allowance equation and used up part of your Lifetime Allowance at that point. 

Transitional protection could be claimed (primary protection and enhanced protection) by people who were already over the new Lifetime Allowance, fending off the "retrospective taxation" label.

How Labour will actually do it this time around or whether they even will is of course anyone's guess.

Albermarle

If they re-introduce the Pension LTA tax, as is their stated intention,

I think you can replace 'stated intention' with 'knee jerk reaction to a surprise announcement'

Probably it will not get re introduced. My money is on a restriction on pension funds IHT exemption instead.  A consequence of removing LTA, is the potential for wealthy people to shelter even more of their estate from IHT.

A policy that quietly shelved the idea of reintroducing LTA but restricted the IHT' loophole' could be more practical and less likely to upset Doctors etc. Also the respected think tank , IFS, has already said this loophole should be closed/restricted so it has some quite heavyweight backing already.

There is even solid logic behind it, in that a pension is designed to provide a retirement income, not to be an IHT avoidance vehicle.

So rather than worrying about LTA tax, we all should now maybe be worrying about paying more IHT. At least it will be less painful as you will be dead !

arnoldy

They may apply a (slightly?) lower rate on NI on pension income, remove the IHT advantages, stop triple lock for all/wealthier, more means testing and F.A. for those that saved etc. Despite the noises about being low tax they are ultimately like an alcoholic next to the drinks cabinet, they will not be able to stop themselves. They will tax and spend (this may or may not be a good thing depending on your point of view) - the only consequence is to what degree will the increased taxes affect the pensioners/older generation.?

steampowered

The LTA was £1.8 million last time Labour were in power in 2010.

As with so many areas of tax policy, Labour had something very sensible in place whereas the Tories have made an utter mess. Flirting between reducing the LTA to an unrealistically low number, and now abolishing it entirely. Get those jokers out and some competent people in, please.

Take a look at the UK's national debt if you want a good laugh -https://www.inverness-courier.co.uk/_media/img/CT6R7QM16O1BIDTGWZOF.jpg

dunstonh

The LTA was £1.8 million last time Labour were in power in 2010.

And the annual allowance was £225,000.  Which is part of the reason the LTA was introduced as it was being used for salary/bonus redirection.

As with so many areas of tax policy, Labour had something very sensible in place whereas the Tories have made an utter mess.

There is nothing sensible about the LTA. It was a bad tax introduced as a sticking plaster to cover another allowance.   Both Labour and Conservatives messed around with it.

 Get those jokers out and some competent people in, please.

And who are those competent people you refer to as nothing immediately comes to mind?

zagfles

steampowered said:

The LTA was £1.8 million last time Labour were in power in 2010.

As with so many areas of tax policy, Labour had something very sensible in place whereas the Tories have made an utter mess. Flirting between reducing the LTA to an unrealistically low number, and now abolishing it entirely. Get those jokers out and some competent people in, please.

Take a look at the UK's national debt if you want a good laugh -https://www.inverness-courier.co.uk/_media/img/CT6R7QM16O1BIDTGWZOF.jpg

But now Labour apparently agree with the Tories reduction in the LTA, as they want to restore it at the level the Tories reduced it to, not the level Labour left it at! Because it'd take the average worker "400 years" to get to the LTA according to their deputy leader Bring back Diane Abbot, she had a better grasp of numbers

https://www.telegraph.co.uk/pensions-retirement/news/experts-ridicule-angela-rayners-pension-saving-sums/

zagfles

dunstonh said:

If they re-introduce the Pension LTA tax, as is their stated intention, then what would be the situation for those who have crystalized all or part of their pension and are now heading towards the Age 75 test (BCE 5, 5A, 5B)?

They could retrospectively apply it or they may not.  

Also, do not underestimate the ability of unions to dictate Labour policy.  Teachers, Nurses, Rail workers, police and Fire Brigade have all come out saying they should get exemptions like the doctors.   

The LTA is bad taxation that generates a relatively small amount of revenue (especially with the cap on TFC).    Are they really going to risk taking on the unions if they just get into power on an issue that generates so little revenue?

And let us not forget that Labour had the LTA much higher than the conservatives and they also had the annual allowance much higher too.   The latter being one of the reasons the LTA was introduced (to combat FTSE100 companies remunerating their directors via the pension system).  

My view is that they are playing to the low income anti tory audience who think wealth is bad pre-election but will quietly let it go if they get in power.   However, they have taken an polling hit as they have failed to realise just how many people were heading for LTA breaches and many of them were traditional Labour voters.

Yes, they don't seem to have got the message that "tax the rich" policies don't win elections. The only elections they've won in the last almost half century have been with a promise not to raise tax rates even on the rich. Yougov opinion poll on the budget showed people were 50/50 on the LTA and in favour of the AA increases. They're going back to being influenced by their class war activists rather than what ordinary people want and what has been proved to win elections.

So if they have any sense they'll backtrack on this...but I don't detect any...

bonnyrigger

A compromise will be worked out no doubt, they won't take it down to where it was and hopefully add some indexation to take away the squabbling.
A bit rich to criticise Rayner from the paper that supported Truss and Brexit.
Would like them to restore CPI increases to tax allowances and bandings, 5 or 6 years at 12570 is a bad joke.