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Sipp client caught in tax trap

A Richard Jacobs Pension & Trustee Services client is trapped in insured funds despite wanting discretionary management because of the increase in the minimum retirement age.

HMRC recently confirmed that income-drawdown investors who switch providers or buy an annuity before the age of 55 will face an unauthorised payment charge. This means the Jacobs’ client cannot transfer out of his Aviva Sipp without facing 55 per cent tax on income.

The 51-year-old was recommended an Aviva Sipp by a former adviser when he contacted Richard Jacobs Pension & Trustee Services. The client wanted an element of discretionary management but the Aviva Sipp does not allow this or investments in external cash deposit accounts, so Richard Jacobs was going to reinvest the money elsewhere.

But following the changes to the retirement age, the client would face unauthorised payment charges if he transfers to another provider that does allow discretionary management and takes income before age 55.

Director Emily Jacobs: “We took over the Sipp because the client was unhappy with his adviser. We are now left with a client in drawdown who wants to invest but we are very restricted by the investments within the Aviva Sipp.

“The only option we have is to put the client in insured funds. It is really frustrating that we cannot transfer the Sipp to another provider and offer the client what should be available to him because of these stupid rules.”

The news comes after the FSA blamed advisers if their clients are stuck in drawdown due to the increase in the minimum retirement age, warning they should prepare for complaints.

It also comes after Money Marketing last week revealed HMRC had apologised for incorrectly telling LV= that drawdown investors could switch providers or buy an annuity before the age of 55 without facing an unauthorised payment charge.


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. There will be many people out there trapped by this bizarre HMRC legislation.

    The problem we are finding is that HMRC are offering no flexibility over this legislation and are in no hurry to resolve this issue.

    As a side point why would anyone pay into / transfer into such a restrictive SIPP?

  2. treating customers fairly doesn’t seen to apply to either the FSA or HMRC…

    I know the legislation was there beforehand, but I do think HMRC are being unreasonable and vindictive.

    It needs to be a member complaining to their MPs in numbers before someone looks into this.

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