Fixed and individual protections 2016
The latest edition of the pension newsletter has been published and, among other things, includes details of how to make an interim application for Fixed Protection 2016 (FP2016) and Individual Protection 2016 (IP2016).
Following the reduction in the lifetime allowance for pension savings, from £1.25m to £1m with effect from 6 April 2016, some people will need to protect their pension pots from the excess tax charge if the value of their funds is already in excess of £1m or likely to exceed £1m. IP2016 will protect pension savings at the lower of:
Any benefits taken from pots in excess of the limit will be taxed at 55% if taken as a lump sum or 25% (on top of the income tax charge) if taken as income. It is permitted to continue saving into the pension pot when IP2016 is in place.
FP2016 protects the pension pot at £1.25m, but further accretions to the fund are not permitted.
It is possible to apply for FP2016 and IP2016.
The newsletter gives the latest draft letters to apply for temporary protection up until August 2016; when the electronic claim system is available in July it will be necessary to apply again electronically before the interim application expires.
Another item in the newsletter picks up on the payment of non-taxable death benefits through RTI (real time information) from April 2016. HMRC has been issuing P6 coding notices, but as there is no tax payable, the notices should not have been issued and HMRC is investigating why they are. In the meantime HMRC is advising pension payers to stop reporting these payments via RTI if possible and await further guidance. If the payments have to be reported and a P6 has been issued, the payer should email HMRC in order to get the code reviewed.