HMRC changes drawdown stance following further legal advice
Following further legal advice HM Revenue & Customs now suggests income drawdown investors moving to another drawdown provider or annuitising before their 55th birthday will not incur a 55 per cent unrecognised transfer charge on their entire fund.
However, income taken through a new drawdown provider before the individual’s 55th birthday would be classified as an unauthorised payment and be hit with a 55 per cent charge.
In this week’s Money Marketing the HMRC stated that income drawdown investors switching providers or moving into an annuity before their 55th birthday would face an unauthorised payment charge of 55 per cent of the entire fund.
This followed previous HMRC guidance which suggested individuals would be hit with a 55 per cent charge on any income taken if they move providers.
But HMRC says that following the publication of the article it has taken further legal advice and it can now confirm that a transfer from one income drawdown fund to another provider before 55 would now be classified as a recognised transfer. A 55 per cent unauthorised payment charge would still be levied on any income taken through the new drawdown fund.
A HMRC spokesman says: “Following further legal advice, HMRC can confirm that a transfer of an income drawdown fund to an income drawdown fund of another provider for an individual aged between 50 and 55 would be a recognised transfer and as such the transfer would not be subject to an unauthorised payment charges.
“However, any payments from the new fund would incur unauthorised payment charges. This is because the individual needs to meet the prevailing normal minimum pension age (i.e. age 55) at the time of the transfer. This restriction applies until the individual’s 55th birthday.”
Chairman of the Association of Member-Directed Pension Schemes and head of technical services at Rowanmoor Pensions Robert Graves says: “We are pleased that common sense has been applied to this issue but we are now back at the original problem which is, why restrict people from taking an income in retirement?”