HMRC removes charges on pre-55 drawdown transfers

HM Revenue and Customs (HMRC) is to remove controversial charges on drawdown transfers for investors aged between 50 and 55.

On 6 April 2010 normal minimum pension age increased from age 50 to 55. The rules imposed an ‘unauthorised payment charge’ on those aged between 50 and 55 who tried to transfer to another provider money they had taken from their pension under the previous rules.

In a statement HMRC said: ‘The Government intends to bring forward regulations to remove the unauthorised payments tax charge where an individual aged 50 and over but under 55 transfers their pension in payment to another pension provider.’

Until now HMRC has viewed transfers of drawdown funds from one pension provider to another as ‘unrecognised’ and liable to a maximum 55% charge.

The changes will be backdated to cover transfers on or after 06 April 2010 when the minimum pension age change became effective. 

According to HMRC: ‘We have become aware that unintentionally the legislation imposes the charge if such an individual transfers their pension before age 55 to a new provider.’

The tax charge had applied to sums and assets:

• of an income drawdown fund transferred to a new income drawdown fund with another provider

• underpinning an existing lifetime annuity transferred to provide a new lifetime annuity

• underpinning an existing short term annuity transferred to provide a new short term annuity or

• underpinning an existing scheme pension transferred to provide a new scheme pension