Further clarity provided on GMP equalisation tax guidance

HMRC's working group on tax challenges has provided further clarity on recent guidance on guaranteed minimum pension (GMP) equalisation and tax treatment, via the Pensions and Lifetime Savings Association (PLSA).

HMRC recently issued guidance on transfer value top-ups and GMP conversion in its GMP equalisation newsletter - April 2022, which addressed issues around the pensions tax implications of equalising members' benefits.

However, the HMRC working group on tax challenges, a member of which sits on the PLSA executive, acknowledged that there has been some confusion on the tax treatment of the interest element, in terms of tax due and the responsibilities of schemes.

In light of this, in a statement shared by the PLSA, the working group confirmed that HMRC is expecting to provide further clarification in a future newsletter, possibly at the end of the May.

It also shared details on general principles that HMRC has already confirmed with industry members of the GMP equalisation working group.

In particular, it confirmed that, for the purpose of GMP equalisation and for pensions tax purposes, the interest payment should be treated as interest payment made in respect of a late payment of pension instalments.

It also suggested that the interest was likely to be “yearly interest” for tax purposes and an obligation to withhold income tax is unlikely to arise under section 874 of Income Tax Act 2007, unless the payment falls under s874(1)(d) i.e. to a person whose usual place of abode is outside the UK.

In addition to this, it confirmed that the interest element should be covered by the personal savings allowance, although it acknowledged that this is primarily a point for individuals and their particular circumstances.

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