Tax treatment of pensions—an introduction

Produced in partnership with Christopher Stiles of Gowling WLG

Practice notes

Tax treatment of pensions—an introduction

Produced in partnership with Christopher Stiles of Gowling WLG

Practice notes

Broadly speaking, tax applies to UK registered pension schemes in three different areas:

•
tax treatment of member and employer contributions (including refunds of member contributions)
•
tax treatment of the assets (including investment returns on those assets) held by the scheme, and
•
tax treatment of benefits paid out of the scheme

Where an individual is a member of more than one registered scheme, contributions to/benefits from each scheme are aggregated for the purpose of determining that individual's tax liability.

This Practice Note covers registered private sector pension schemes. Public sector pension schemes are largely dealt with by separate legislation. Tax treatment is similar but not always identical to that applying to registered private pension schemes.

The pensions tax relief system

The current pensions tax relief system can be described as 'Exempt-Exempt-Taxed':

•
Exempt—in broad terms, pension contributions by individuals and their employers are exempt from income tax and corporation tax (subject to the annual allowance)
•
Exempt—investment returns made from pension contributions are broadly exempt from income tax and capital gains tax
•
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Christopher Stiles

Partner, Gowling WLG

Christopher Stiles is a partner based primarily in Birmingham who helps clients to deal with any contentious or non-contentious legal issues that may arise in relation to their pension plans with the greatest possible ease and efficiency.

Pensions can be a challenging area for employers, with pension plans that ranging from legacy arrangements that are now closed to accrual, but are still a major liability on the balance sheet, to ongoing plans that are used to reward current employees.

Christopher takes a particular interest in innovative and complex projects including asset-backed funding arrangements, liability management exercises and buy-outs.

On the trustee side, Christopher has close ongoing relationships with his trustee clients and helps them through the legal issues they face in running their pension schemes, both the day-to-day problems and larger projects including scheme mergers and wind-ups

Jurisdiction(s):

United Kingdom

Key definition:

Budget definition

What does Budget mean?

A document setting out information on the economy and outlining the government's future tax plans. It is presented to the House of Commons each autumn by the Chancellor of the Exchequer. In addition to the Spring statement, it is one of the most important fiscal events in the tax year.

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Tax treatment of pensions—an introduction

Produced in partnership with Christopher Stiles of Gowling WLG