I have sent my initial thoughts (see below) and hope other forum members will try to ensure the changes are sensible. It is hard to argue in pure principle against a reversal of a 2015 policy change or that what goes in with an income tax deduction and secures tax-free growth should come out with an income tax charge. A double charge to IHT is surely unreasonable unless like HMG you have till rolls for eyeballs. The s151 IHTA treatment did not arrive in 2015. It originated in the CTT (later IHTA) 1984 but the “discretionary” principle prevented inclusion in the taxable death estate in Part III FA 1975 and under estate duty so to override it is a totally new departure.
"My initial thoughts. As ever you are transfixed by process: reporting and collection. Pensioners are interested in the substantive changes.
1 The exemption for surviving spouse or civil partner is buried away in the Case Studies. This should have been highlighted prominently in case the announcement caused fatal heart attacks among pensioners.
2 What about the current difference between deaths before and after age 75?
3 A legitimate expectation is that where the fund is within charge withdrawals from after death net of IHT should NOT be liable to income tax as now if the pensioner is over 75. Again, not highlighted as it should have been probably because of your IHT-focused tunnel vision.
4 The tax position should be aligned with the law of succession. At present the discretionary nature of the provider’s power to distribute after death attracts IHT exemption. Though only a technical fig leaf and unfair on non-discretionary schemes, it does not therefore admit of devolution by will or on intestacy. If it’s taxable it should be transmissible on death. Again, IHT focus tunnel vision probably accounts for the omission to consider other legal consequences, including exposure to bankruptcy if it becomes an asset of which the deceased is competent to dispose. And there will be amendments of scheme rules to deal with. Presumably the fund would then benefit from s142 and s144. like tenancy in common of jointly owned assets.
5 Hopefully before HMG and HMRC trample over this area in their great clodhoppers they will adopt joined-up thinking and not as usual come up with legislation that fails to cater for even the most foreseeable issues which will have to be pointed out by professional bodies or run through the courts at taxpayers’ expense. We are all sick of poorly drafted legislation based on jejune jurisprudence.
6 Taxpayers may have run down their personal assets in expectation of the continuity of the current rules. As always you will hide behind the casuistry of changes being retroactive not retrospective. (Yeah right!). Hence deferred implementation date. Again as always you will overlook human nature and behaviour. You need to estimate how this will affect future choices to save by these means. Given HMG has binned the cap on social care contributions they have to factor in a 40% reduction in available fund or up to an additional 40% x 60% = 24% if withdrawals are income taxable without a credit/franking mechanism
7 I hope you will not regard suicide before 2027 as tax avoidance caught by the GAAR or by enacting forestalling provisions."
Jack Harper