PLSA issues further clarification on HMRC’s GMP guidance

HMRC published its long-awaited GMP guidance earlier in April, principally covering GMP conversion and top-ups to past transfers. 

The industry had long been keen that such guidance covers conversion in particular, as there was considerable uncertainty around the tax implications of that equalisation method. 

In the event, the guidance confirmed that GMP conversion could cause tax issues, especially concerning the annual and lifetime allowances, an admission that led industry experts to call for legislation to arrive “quickly”.

On April 20, the PLSA published an update aimed at addressing “confusion”, arising from the guidance, about the tax treatment of the interest element, looking in particular at what tax is due and whether schemes have a responsibility to deduct it at source.

It stressed that the update did not concern the tax treatment of the arrears as these were covered in HMRC’s guidance, but specifically tax questions around interest.

The PLSA said that HMRC may publish an update of its own in May, but it had already confirmed the details with the GMP equalisation working group, hence sharing the details now.

It argued that, for pensions tax purposes, interest payments should be treated “as interest payment made in respect of a late payment of pension instalments”.

“The interest is likely to be ‘yearly interest’ for tax purposes, and an obligation to withhold income tax is unlikely to arise under section 874 of the Income Tax Act 2007, unless of course the payment falls under s874 (1)(d) — ie, to a person whose usual place of abode is outside the UK,” the trade body said.

The PLSA added that the interest element should be covered by the personal savings allowance, though this “is primarily a point for individuals and their particular circumstances”.

It continued: “We hope this is useful to PLSA’s members and the wider pensions industry in managing payments and communications with scheme members.”