Can government retrospectively change tax-free lump sum allowance in the budget?

Ponsienella2

My husband took a £47k rax-free lump sump from one company pension when he was 60. Now, 7 years later, he is planning to take another of his company pensions and buy an annuity as he wants the certainty of a guaranteed income.  He plans to take the 25% tax-free lump sum which is £85k. He has the application ready to go but is concerned about speculation that the government might restrict tax-free lump sums to £100k. He will have taken £132k in total.

My thoughts are that if they did this it would have to be from the start of a new tax year. They couldn't possibly say to those who have already taken over £100k this year that the excess will now be subject to tax can they? I'm just not sure with this lot.

Can any tax bods offer advice? 

Mark_d

You are correct.  The government can't change the tax rules retrospectively

MattMattMattUK

Mark_d said:

You are correct.  The government can't change the tax rules retrospectively

It can, it has the capacity legislate retrospectively and has in a handful of instances over the last hundred years, that being said it is very rare and has never been used as a revenue raising measure. It would also spook markets and damage investment so is very unlikely, note it is a will not, rather than cannot situation. 

Ponsienella2

Phew, thank goodness for that. 

Ponsienella2

MattMattMattUK said:

Mark_d said:

You are correct.  The government can't change the tax rules retrospectively

It can, it has the capacity legislate retrospectively and has in a handful of instances over the last hundred years, that being said it is very rare and has never been used as a revenue raising measure. It would also spook markets and damage investment so is very unlikely, note it is a will not, rather than cannot situation. 

Thank you. That's what my worry is. I know it would deter investment but I'm not sure this govt realises that (or perhaps they don't care as long as they can realise the aim of what they view as equality. 

My husband has noticed there is a 14-dau cooling off period for buying the annuity so thinks he'll start the ball rolling. If the govt did make a ruling in the budget to retrospectively change the amount, he will cancel the annuity and just take a £53k lump sum.

DullGreyGuy

Mark_d said:

You are correct.  The government can't change the tax rules retrospectively

There is a large amount of tax legislation that is back dated, but in most cases its back to when the budget was announced because it takes parliament some time to enact the law changes and they dont want some people to have a window of opportunity between the announcement and enactment to act against the changes. 

There are however many examples of backdating of tax law changes that go back beyond the announcement, most are to do with closing tax loopholes. In 1978 they implemented the "Rees Rules" which had an effective date of 1976.  Similarly section 58 of the Finance Act 2008 was applied retrospectively indefinitely which was against a tax avoidance scheme miss using the double taxation treaty abuse. 

Labour has actually got form, most the recent ones were theirs but they were all also closing barely legal/making sure there was no doubt things were illegal schemes

double_dutchy

Ponsienella2 said:

My husband took a £47k rax-free lump sump from one company pension when he was 60. 

Was this the maximum lump sum he could take (i.e. 25% of the pension pot)?

I previously took a lump sum from my pension, but not the maximum amount available. For lump sum allowance purposes, though, I have been deemed to have already taken 25% of the total pot.

Albermarle

Ponsienella2 said:

My husband took a £47k rax-free lump sump from one company pension when he was 60. Now, 7 years later, he is planning to take another of his company pensions and buy an annuity as he wants the certainty of a guaranteed income.  He plans to take the 25% tax-free lump sum which is £85k. He has the application ready to go but is concerned about speculation that the government might restrict tax-free lump sums to £100k. He will have taken £132k in total.

My thoughts are that if they did this it would have to be from the start of a new tax year. They couldn't possibly say to those who have already taken over £100k this year that the excess will now be subject to tax can they? I'm just not sure with this lot.

Can any tax bods offer advice? 

There are numerous similar posts on the pensions forum.
There has been a lot of fevered speculation/ scaremongering in parts of the media about the budget. Most of the guesses will turn out to  be wrong, and the reduction of the maximum tax fee sum  to £100k is probably one of them.

Albermarle

double_dutchy said:

Ponsienella2 said:

My husband took a £47k rax-free lump sump from one company pension when he was 60. 

Was this the maximum lump sum he could take (i.e. 25% of the pension pot)?

I previously took a lump sum from my pension, but not the maximum amount available. For lump sum allowance purposes, though, I have been deemed to have already taken 25% of the total pot.

There can be some complications between the old LTA calculation and the new LSA. Suggest you start a new thread in the Pensions forum, giving the exact details of what has happened.

Ponsienella2

double_dutchy said:

Ponsienella2 said:

My husband took a £47k rax-free lump sump from one company pension when he was 60. 

Was this the maximum lump sum he could take (i.e. 25% of the pension pot)?

I previously took a lump sum from my pension, but not the maximum amount available. For lump sum allowance purposes, though, I have been deemed to have already taken 25% of the total pot.

Yes. It was the maximum.

Ponsienella2

Albermarle said:

double_dutchy said:

Ponsienella2 said:

My husband took a £47k rax-free lump sump from one company pension when he was 60. 

Was this the maximum lump sum he could take (i.e. 25% of the pension pot)?

I previously took a lump sum from my pension, but not the maximum amount available. For lump sum allowance purposes, though, I have been deemed to have already taken 25% of the total pot.

There can be some complications between the old LTA calculation and the new LSA. Suggest you start a new thread in the Pensions forum, giving the exact details of what has happened.

What more details are required?