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Tony Wickenden: A closer look at time apportionment relief

Tony Wickenden Tax Planning Technical Area

I will start this week’s article (in a series looking at the outcomes from consultations) with a look at what has emerged in relation to purchased life annuities.

The European Court of Justice’s decision in the Test-Achats case requires that insurance benefits and premiums be calculated in gender-neutral ways.

Draft regulations were laid before the House of Commons on 21 November 2012 which ensure that the amount of each purchased life annuity payment which is exempt from tax is calculated, with effect from 21 December 2012, using the male mortality tables to comply with the requirements of this decision.

The subject of family pensions has attracted some interest to date.

In the Budget 2012, it was announced that legislation would be introduced in the Finance Bill 2013 to neutralise any tax/NIC advantages where an employer pays a pension contribution into a ‘family pension’. Typically, this was a registered pension scheme for an employee’s spouse or family member (who was not also employed by the employer making the contribution) which was set up as part of that employee’s flexible remuneration package. At the time, it was unclear from what date these changes would be effective (ie. from the date of the Budget or from some later date).

HM Revenue and Customs has now announced that ‘legislation effective from 6 April 2013’ is being introduced in the Finance Bill 2013 on this matter. This will aim to remove the unintended tax advantages from arrangements where an employer pays a pension contribution into a registered pension scheme for an employee’s spouse or family member as part of the employee’s flexible remuneration package. From the effective date, for a contribution to be exempt from income tax it will need to be made to the employee’s registered scheme rather than any registered scheme.

This would seem to imply that family spousal pensions may still be effective for contributions paid before 6 April 2013. This may mean that it is still possible for an employer to make substantial contributions into a registered pensiAon scheme for the benefit of an employee’s (non-employed) spouse without adverse tax/NIC implications for the employee and employer.

Time apportionment relief

Time apportionment relief is a relief that reduces the taxable chargeable event gain under an offshore policy, typically a single premium bond, in accordance with the number of days (expressed as a percentage of the total number of days of ownership) that the policyholder had owned the policy whilst non-UK resident.

Currently it only applies to offshore policies. The Government had highlighted some loopholes in the current legislation and issued a consultative document in the Summer of 2012.

Following responses to its consultation, it looks as though the revised tax regime will have the following features:

  • Relief will be available to policies issued from the UK as well as non-UK policies.
  • The residence history of the policy will be based on that of the beneficial owner of the policy at the time of the chargeable event. This person will, in general, be the person on whom the chargeable event gain is taxed.
  • Where there are joint beneficial owners, the residence history of each beneficial owner will be taken into account.
  • Where the ‘split year’ rule applies under the proposed statutory residence test, the period of non-residence will count as non-residence for time-apportionment relief.
  • The changes will not impact on the chargeable event gains which insurance companies have to report to HMRC.
  • Where chargeable event gains are brought into tax under the proposed income tax temporarily non-resident rule (similar to the current CGT temporarily non-resident rule), time apportionment relief and top-slicing relief will be available.
  • No changes will be made to any relevant double taxation provisions.
  • The relief will mostly be available to the person liable to UK tax on the chargeable event gain.
  • Over time, HMRC will endeavour to ensure that the rules provide a more appropriate reduction to gains.

A look at the outcomes from consultations must include at least a passing reference to the General Anti-Abuse Rule (GAAR).

Much has been written and spoken about tax avoidance in the last 6 months. Ask several celebrities and a leading coffee house chain!

The GAAR is seen by many as the ‘centerpiece’ of the Government’s attack on ‘unacceptable’ tax avoidance.

The GAAR, in its proposed draft form was, broadly speaking, intended to apply to ‘abusive tax arrangements’. The GAAR will be the subject of more extensive consideration by me a little later but I will provide a summary of the outcomes from the important consultation on this topic next week.

Tony Wickenden is joint managing director at Technical Connection

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