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Revenue blocks SSAS limit loophole

Her Majesty’s Revenue and Customs has closed a loophole that could have allowed small self-administered scheme members to build a pension pot over the lifetime allowance while avoiding tax charges.

The Revenue’s warning that attempts to dodge the lifetime allowance constitute tax avoidance comes after it discovered a number of company directors and high-earners trying to exploit grey areas in the pension simplification rules.

SSASs are typically regarded as money-purchase schemes but the Revenue says some individuals are setting up schemes containing big pension benefit promises without the pension pot to support the promise.

Investors would then claim enhanced protection at A-Day based on this promise and then pay in contributions to fund it after A-Day. One of the conditions of enhanced protection for defined-contribution schemes claiming enhanced protection is that no further contributions are made after A-Day. However, individuals are looking to get round this by treating the SSAS as a defined-benefit scheme which has different rules for enhanced protection.

The Revenue warns that these schemes are unlikely to get tax approval and could face a 40 per cent tax charge.

Standard Life marketing technical manager John Lawson says: “This is clearly exploiting a grey area in the nature of SSASs but it is clear from the HMRC statement that they regard SSAS as a money-purchase scheme.”

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