Govt to review DB superfund taxation framework

The government has said it will be reviewing the appropriate taxation framework for defined benefit (DB) pension superfunds, and making “technical updates” to McCloud tax rules.

In its Tax policies and consultations - Spring 2021 publication, the government stated that work on the DB superfund tax framework will proceed alongside the development of the regulatory regime, which is already underway.

The paper said DB superfunds were “innovative area”, and that it should not be assumed that the current tax regime that applies to entities and transactions in the superfund structure would remain unchanged.

“The government’s approach will be informed by the features of the permanent regulatory regime,” it noted.

Alongside this, the government announced that will be making “technical updates” to pension tax rules relating to the McCloud judgment, to rectify “anomalies” it has identified.

The government stated that it was finalising the McCloud remedy, during which it identified “several aspects of the pension tax framework that do not work as intended in all situations and need updating to deal properly with cases of this type”.

As an example, the government noted that the current framework does not “straightforwardly” allow savers to ask their pension scheme to settle annual allowance charges from previous tax years by reducing their future benefits, also known as Scheme Pays.

The paper stated: “The government will therefore make technical updates to pension tax rules to remove such anomalies.”

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