“The big questions around tax treatment of ‘GMP equalisation’ relate to what happens when GMPs are converted into other benefits. That was never going to be addressed here, but guidance on the tax treatment of ‘GMP equalisation’ that does not mention conversion has a ‘Hamlet without the Prince’ feel to it. While HMRC aims to give more guidance on lump sums and death benefits ‘as soon as possible’, conversion would seem to be further back in the queue; HMRC states only that it ‘will continue to explore the tax implications’ of conversion.
“Hopefully, HMRC’s principle that ‘GMP equalisation’ benefit adjustments ‘on their own, would not constitute new accrual of benefit’ for Annual Allowance or Lifetime Allowance protection purposes might feed through to its ongoing work on conversion – after all, the Court held that conversion is a valid way to achieve equalisation. In the meantime, having this confirmed for equalisation without conversion is helpful.
“Schemes have been told to recalculate what proportion of a pensioner’s Lifetime Allowance was used up when the member put their benefits into payment, where this happened after 5 April 2006. In most cases, these calculations will be irrelevant as pensioners will be comfortably within the Lifetime Allowance and no tax will be ever be due – but schemes will still have to perform the calculation, communicate the change and deal with questions from pensioners. Where tax charges do result, collecting them will not always be straightforward. If ‘GMP equalisation’ means that a member’s pension is now estimated to have used up 52% rather than 50% of their Lifetime Allowance, the 50% they later used when accessing a pension from a second scheme will now generate a Lifetime Allowance charge, even if that scheme is not itself affected by equalisation. HMRC may be relying on members understanding this and notifying their other schemes. The charges will be simpler to collect where the member’s benefits were all or mostly in the scheme undergoing equalisation; in these cases, affected members might already be known to have paid a Lifetime Allowance charge.”
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