The Government's Spring 2023 Budget announced a number of measures to liberalise pensions taxation and on 18th July it took these measures one step further by announcing the complete abolition of the lifetime limit on career pension savings, as well as introducing new lump sum tax allowances.
The changes are proposed to take effect from April 2024 and will affect individuals' retirement planning and the administration of pension schemes. The below article outlines these changes as well as providing some information on what action pension scheme members will need to take in the face of these changes as well as some more information and background about them.
1. The Main Changes/ Actions Required
On 18 July, HMRC announced latest changes to pension taxation. The Lifetime Allowance, the career limit on individuals' savings in registered pension schemes, is to be completely abolished and new tax allowances are to be introduced on lump sum benefits payable on retirement and death. Action employers and pension scheme trustees will see that there is a lot of detail to the changes that they will need to understand. As a first stage they need to know that the changes take effect in April 2024 and they may affect when members/employees time their retirements. Of course, employers and trustees should not take on responsibility for explaining the changes to individuals - that will be a role for financial advisers, including any retained by the employer as part of its employee benefits package. Publications, such as scheme booklets and other pensions information, will almost certainly need a health warning added, drawing attention to these changes.
2. Background/Abolition of the Lifetime Allowance Tax Charge on 6 April 2023
Following the Spring 2023 Budget, the Government abolished the Lifetime Allowance Tax Charge ("LATC") from 6 April 2023. The LATC previously imposed a tax of 55% on lump sum benefits which took an individual over the Lifetime Allowance, which was a limit applying to the individual's career benefits under all registered pension schemes. The Standard Lifetime Allowance at 5 April 2023 was £1,073,100. Some people (generally higher earners) have had protected higher levels of Lifetime Allowance due to accrued rights built up when the Standard Lifetime Allowance was greater than this. Until 6 April 2023 lump sum tax free cash drawn at retirement was generally limited to 25% of the value of an individual's benefits under a registered pension scheme subject to an overall maximum of 25% of the Lifetime Allowance. Some people have had rights to protected tax free cash of a greater amount than this, due to their accrued rights at 5 April 2006.
3. Complete Removal of the Lifetime Allowance from 6 April 2024
The abolition of the LATC from 6 April 2023 was confirmed by the Finance (No 2) Act 2023, which received Royal Assent on 11 July 2023. Following this, the Government on 18 July 2023 issued a policy paper and draft legislation to go one step further by abolishing the Lifetime Allowance altogether from 6 April 2024. This will mean that scheme administrators will no longer need to check an individual's benefits against the Lifetime Allowance where benefits are drawn after 5 April 2024. The complete abolition of the Lifetime Allowance is also likely to make it more difficult for a future Government to reverse the changes and reimpose the LATC.
4. Freezing of the Limit on Tax Free Cash at Retirement/New Lump Sum Allowance
With the complete removal of the Lifetime Allowance, the limit on tax free cash at retirement is to be permanently frozen at its current level. That level will continue to be 25% of the value of the individual's benefits under a registered pension scheme, but will be subject to a fixed overall monetary limit, the "Lump Sum Allowance", of £268,275 (which is 25% of the Standard Lifetime Allowance at 5 April 2023), or 25% of the individual's personal protected higher level of Lifetime Allowance at 5 April 2023 (or the individual's protected tax free cash limit).
5. New Lump Sum and Death Benefit Allowance
There is to be a new cumulative Lump Sum and Death Benefit Allowance of £1,073,100 (which was the Standard Lifetime Allowance at 5 April 2023)(or higher protected Lifetime Allowance at that date). That new allowance is to apply to the aggregate of the retirement cash sums and lump sum death benefits paid to or in respect of an individual under all registered pension schemes. Such lump sum benefits will be free of income tax within that overall new Lump Sum and Death Benefit Allowance.
Where any retirement cash sum or lump sum death benefit paid to or in respect of an individual under any registered pension scheme takes the individual over the new Lump Sum and Death Benefit Allowance, any excess benefits will be subject to income tax. The recipient of the benefit will be liable to income tax on such excess benefits at the recipient's top marginal rate of income tax. In the case of lump sum death benefits, the beneficiaries of the lump sum death benefit will be liable to such income tax. That income tax liability will replace the liability to pay the LATC, which was at the rate of 55% of the excess over the Lifetime Allowance. The recipient's income tax liability will be at most 45% under current income tax rates and could be much lower than that. Beneficiaries of lump sum death benefits, such as spouses or children, would pay no income tax on them if they are within their income tax allowance (currently of £12,570 per annum) and would pay only basic rate income tax of 20% on a further tranche after that.
6. Unlimited Taxable DB Retirement Cash Sums?
As far as retirement cash sums are concerned, the new income tax charge appears to be designed to replace the existing possibility of Lifetime Allowance Excess Lump Sums, which prior to 6 April 2023 were subject to a LATC of 55%. Currently, the range of potential retirement cash sums from defined benefit (DB) pension schemes is restricted to tax free cash, a Lifetime Allowance Excess Lump Sum, a trivial or small commutation lump sum (subject to limits of £18,000 and £30,000) and a serious ill-health lump sum (which may be paid only where the member has no more than a year to live). This contrasts with the position under DC pension schemes, where a member may draw an unlimited taxable retirement cash sum, known as an Uncrystallised Funds Pension Lump Sum (UFPLS).
Under HMRC's 18 July proposals, however, no limits have been set out as applying to the new taxable DB retirement cash sums, which would exceed the new Lump Sum Allowance. This would supply members of DB pension schemes the same rights to an unlimited taxable retirement cash sum as applies under a DC pension scheme (akin to an UFPLS). However, it appears that the absence of restrictions on DB taxable retirement cash sums is unintended by HMRC. We await HMRC's proposals as to what restrictions will apply to taxable DB retirement cash sums.
7. Taxable DC Pension Death Benefits
By way of contrast with DB benefits, considerable flexibility has been granted under existing legislation prior to 6 April 2023 to DC pension schemes. This has included the ability of DC schemes to pay a DC pension on a tax free basis where a member dies under age 75 with uncrystallised DC funds, which are designated as payable to a dependant or nominee of the member within 2 years after the member's death. No income tax currently applies to such DC pensions, though prior to 6 April 2023 such DC pensions have been subject to the Lifetime Allowance and would be subject to the LATC where the Lifetime Allowance was exceeded.
With the abolition of the Lifetime Allowance, HMRC's 18 July proposals would remove the income tax free status of such DC pensions and make the recipient of such a pension liable to income tax on such pension at the recipient's top marginal rate of income tax. That income tax liability would apply without reference to the former Lifetime Allowance or to the new Lump Sum and Death Benefit Allowance (the latter applies only to lump sum benefits) and so would apply regardless of the value of the member's or the dependant's or the nominee's pension rights.
That income tax liability could apply to pension rights of modest value. It remains to be seen whether HMRC will maintain this new restriction on DC pension death benefits. If this restriction is maintained, there would be a tax advantage in paying DC death benefits in lump sum form. Such lump sum DC death benefits would be income tax free within the new Lump Sum and Death Benefit Allowance.
8. Transitional and Member Communications Issues
There are a number of details missing from HMRC's 18 July proposals. It is not clear how benefits which have been drawn prior to 6 April 2024 are to be taken into account towards the new lump sum allowances, particularly where the existence or the extent of a previous retirement cash sum is not known.
There will be member communications issues for pension trustees and scheme administrators, who will need to inform scheme members of their rights on retirement several months before HMRC's 18 July proposals come into force on 6 April 2024. It would be desirable for the uncertainties regarding HMRC's proposals to be resolved before those communications have to be issued to scheme members.
There will be future member communications issues for trustees and scheme administrators as to keeping scheme members informed about how the value of the retirement lump sums which they draw from all their registered pension schemes will compare to the new Lump Sum Allowance.
Jeremy Harris, Partner, Fieldfisher 9 August 2023
THE Namibia Revenue Agency (Namra), in collaboration with the Ministry of Education, Arts and Culture, and the National Theatre of Namibia earlier this month (8 August 2023) held its first stakeholder engagement with the creative industry.
THE REALITY
Statistics presented by Namra commissioner Sam Shivute showed that 588 taxpayers are registered in the arts, entertainment, and recreation sectors. Shivute said this figure does not reflect the realities of the industry that has a vast influence and contribution to the Namibian economy.
“This sector contributes to the reduction of unemployment, entertainment, and tourism,” the commissioner said. Namra admitted that they do not have enough data or records from the creative industry, making it difficult to measure their contribution to the economy. This directly affects Namra’s domestic resource mobilisation efforts.
“We know this sector contributes big time to this economy, but we cannot manage what we cannot measure,” he said. Namra requested future cooperation with the arts and culture sectors to ensure the that their data is updated to better reflect the realities.
TAX COMPLIANCE
Namra executive officials said every creative – employed and earning an income in Namibia – should be a registered taxpayer. However, senior manager of regional operations for domestic taxes Frieda Muaine clarified that only those that meet the N$50 000 per year threshold are required to pay income tax. “Any person [earning] more than N$4 166.00 [per month] should be taxable in Namibia,” she said.
“I am a registered taxpayer and I agree that tax should be paid,” actress and model Odile Gertze told Unwrap, while also highlighting a reality for many in the industry, which is that although she earns an income from the arts through acting, dancing, and working behind the scenes at music concerts, it is not her primary source of income.
Afroprint Line owner Ndeshi Fikameni focuses on manufacturing and textiles. She, however, said her business still does not generate revenue of N$500 000 per year to pay VAT.
“Namra should first understand that the creative industry is not seen as professional, even in terms of income revenue. Additionally, nobody is regulating how creatives should be paid, etc. Until that is sorted, the issues of taxes should be put on hold,” she said.
Frans Koolike, who is a content creator on YouTuber, solely relies on his craft to earn a living. He said he is optimistic that his consultancy business will meet the VAT threshold next year, however, highlighted the lack of legal framework around digital services provided by Namibians.
“I have a registered company that incorporates film and productions, however, within the area of digital as a country we have a grey area, no legal framework around digital platforms, and the nature of e-commerce or cloud service, digital transactions, basically as a country losing a lot in revenue and subjecting people to hefty charges due to the absence of legal certainty,” he said.
REGISTRATION BENEFITS
Shivute used the platform to advise the creative industry to unify and organise themselves for benefits and future opportunities.
He said registering for taxes is one way they can organise themselves, as it will enable the Namra team to create accurate models of the industry’s VAT and tax contribution.
The creative industry will be able to track their contribution to the national revenue and be eligible to benefit from incentives and policy adjustments when they speak as one strong voice, that is seeking help as an industry to receive support and benefits, said Shivute.
“We also have an obligation to understand you, to understand the challenges that you have with tax administration, the challenges you have with customs administration and how can we collaboratively hold hands and move in the same direction.”
This creative industry stakeholder engagement formed part of a series of stakeholder engagements that Namra has set to undertake to understand the different Namibian sectors’ needs while advocating tax compliance. –unWrap
Fountain voters will soon have a say in whether a tax increase should help fund an increasing need for road maintenance and expansion projects.
The Fountain City Council on Tuesday unanimously voted to bring before voters the question of membership in the Pikes Peak Rural Transportation Authority, which collects a 1% sales tax that pays for some of the region’s largest road extensions, maintenance and expansion. Despite being the region’s second-largest municipality, Fountain is not a member of the PPRTA, whose tax revenues currently benefit Colorado Springs, El Paso County, Manitou Springs, Green Mountain Falls, Ramah and Calhan.
The council approved the ballot question language, which will ask voters on Nov. 7 whether Fountain should impose the sales tax required to join the PPRTA.
The question comes after a recent city survey of 741 registered Fountain voters found that a majority of respondents — 59% — are in favor of the tax increase. While most public feedback from those both for and against the move has agreed on perceived poor road quality in the city, residents have differed on how maintenance should be funded.
Fountain resident Penny Cimino echoed several survey responses that feared their tax dollars could not be guaranteed to return to Fountain or that officials would put that money toward uses other than roads, and said the problem with joining PPRTA involves "trust."
She and several residents also said they believe the road quality within Colorado Springs and other existing PPRTA member municipalities does not differ from those in Fountain, and called for finding alternative means of funding road maintenance, such as staff salary cuts.
"When I go into Colorado Springs and drive around, I don't see where it has helped them a great deal," Cimino said. "(Fountain government is) like that friend that always needs money for food, clothing and housing, so you supply it to them because you feel bad for them, only to watch them waste it."
Resident Fran Carrick cited rising costs of living and gas expenses, and urged the city to live within its means, as residents must.
"People are struggling, inflation is out of control," Carrick said. "The council needs to be in touch with the citizens in Fountain ... before you ask for this tax increase."
Those in support of joining PPRTA have cited minimal cost to taxpayers relative to benefits of road improvements and have argued that any Fountain resident who spends money elsewhere in the county is already paying into the PPRTA.
One resident on Tuesday said that while he does not favor most tax increases, the 1% sales tax could be much less than the hundreds of dollars one might spend to replace or realign tires after traveling poor road conditions.
"Yes, the 1% can add up but it's not going to add up to the additional cost that somebody (may not be able to afford) to get their vehicle to work because of (potholes)," the resident said.
"I would, at the very least, like the opportunity to vote on this," he said.
The city’s Finance Department estimates that Fountain residents pay over $1.2 million in sales tax that is not returned to the city, because it is not a PPRTA member.
If residents were to pass the potential ballot measure, a 1% sales tax rate could generate an estimated $3.8 million annually that would go to the PPRTA; however, Fountain would receive $3.5 million in return for street capital projects and over $2 million for maintenance, Fountain Mayor Sharon Thompson previously told The Gazette.
By joining PPRTA, accrual of funds in coming years would allow the city to chip away at an estimated $50 million to $75 million backlog in unfunded street maintenance and capital projects as well as prepare for future growth, survey documents said.
The city has said it would prioritize improving and maintaining existing infrastructure first, including resurfacing or rebuilding Fountain Mesa Road, Cross Creek, Crest Drive and Ohio Avenue.
Its membership would also "benefit the region" by streamlining funding and collaboration on potential joint projects, such as maintenance of shared roads with "checkerboard ownership," like Marksheffel Road and Fontaine Boulevard, El Paso County Engineer Josh Palmer told county commissioners in early August.
"It's not going to solve our problems with our roads in one year," Councilmember Detra Duncan said Tuesday. "Will it help? It will."
Councilmember Tamara Estes told residents the council's decision to bring the question before voters is not necessarily an official endorsement of PPRTA membership.
"Tonight, our vote reflects that we want the citizens to vote on this," Estes said. "I feel strongly our citizens need a voice in the process ... we want to supply you the chance to say yes or no."
As we delve into the world of solar energy, it’s crucial to understand the various incentives, tax credits and rebates available to Pennsylvania residents. These financial aids can significantly reduce the cost of installing a solar energy system, making it a more viable and affordable option for many homeowners.
In this section, we’ll break down each of these incentives, providing a comprehensive guide to help you navigate the landscape of solar energy benefits in Pennsylvania.
The Pennsylvania Sunshine Program is a state initiative encouraging solar energy usage among small businesses and homeowners. This program has set aside $100 million in rebates to help support solar electric, solar hot water and battery backup systems.
Residential and small business solar projects are eligible for rebates under this program. Households can receive one rebate for installing up to 100 kilowatts of solar photovoltaic (PV) generating capacity and another for solar thermal systems, with a maximum of $5,000. Small businesses may apply for one PV and one solar thermal application but must finish the project and rebate process before submitting another application.
It is important to note that the Sunshine rebate cannot be combined with other rebates or subsidies to receive multiple benefits for the same project. Projects receiving additional rebates or subsidies are not eligible for Sunshine rebates. But, using federal tax credits and Sunshine rebates is recommended wherever applicable.
For more detailed information about the program, please refer to the PA Sunshine Program Guidelines and the PA Sunshine Program Double Dipping Policy.
The Pennsylvania Solar Renewable Energy Certificates (SRECs) program aims to incentivize homeowners and business owners who have invested in solar energy systems. The program allows owners of such systems to earn one SREC for every megawatt-hour (MWh) of electricity their solar system generates.
For context, a single MWh equals 1,000 kilowatt-hours (kWh), and it is estimated that in 2020, households in Pennsylvania consumed an average of 846 kWh monthly. Thus, a solar energy network designed to power an average home in Pennsylvania could potentially create up to 10 SRECs annually.
Solar producers can sell these SRECs on the open market and generate income. SRECs get registered and monitored within the PJM Generation Attribute Tracking System (GATS) along with the other Alternative Energy Credits. It is now possible to sell Pennsylvania SRECs in Ohio, starting in the summer of 2022.
To participate in the program and earn SRECs in Pennsylvania, solar energy system owners must apply for the Pennsylvania Public Utility Commission’s (PUC) Alternative Energy Credit Program and become certified as a qualified alternative energy facility. Once approved, owners can register their solar system on the GATS trading platform and earn and sell their SRECs to potential buyers.
For more detailed information about the program, please refer to the Pennsylvania Public Utility Commission’s Alternative Energy Credit Program.
The Solarize Philly program is a citywide initiative that aims to simplify and make solar installation more affordable for residents in Philadelphia. When homeowners sign up for Solarize Philly, they receive a complimentary solar project proposal. These proposals are tailored to the homeowner’s electricity usage and available roof space, ensuring maximum energy savings.
The Philadelphia Energy Authority (PEA) has negotiated discounted rates with installers and equipment suppliers to ensure competitive pricing. The program guarantees that the chosen installers are reputable, contracts are standardized with consumer protections and the equipment meets high-quality standards with suitable warranties.
In addition, Solarize Philly offers the Solar Savings Grant Program, which aims to assist low- and moderate-income households in participating. PEA provides a grant to cover a portion of the project cost, allowing participants to finance the remaining amount and benefit from savings in the first year.
Please refer to the Solarize Philly Program for more detailed information about the program.
The Philadelphia Solar Incentive Program is designed to encourage property owners in Philadelphia to install solar photovoltaic systems. This initiative provides a one-time incentive payment after the solar project has been installed and received Permission to Operate from PECO (formerly the Philadelphia Electric Company).
Under this program, residential projects can benefit from a savings of $0.20 per watt, while commercial projects can receive a savings of $0.10 per watt. It’s important to note that solar rebates are capped at $100,000 per project, and a portion of the rebate funds, at least 10%, will be reserved specifically for low- and moderate-income households.
The rebate program is inactive due to the redirection of funds for emergency Covid-19 budget purposes. However, once funding becomes available, the Philadelphia Energy Authority (PEA) will issue the rebate to those who have signed up. Therefore, we recommend applying for the rebate once your solar panels have been installed.
For more detailed information about the program, please refer to the Philadelphia Solar Rebate page.
This is a unique state incentive to support energy-efficiency repairs for homeowners in Pennsylvania. Eligible borrowers can access loans ranging from $1,000 to $10,000 with an interest rate of 1% over a ten-year loan period. Borrowers are free to prepay their loans without incurring any penalties.
The funds acquired through HEELP can be utilized for a variety of energy efficiency purposes, including:
The income limits for participation in HEELP are determined based on the number of individuals in the household. These limits range from an annual income of $53,450 for a single individual to $100,800 for a household of eight individuals.
All contractors working with HEELP borrowers must be approved. Here are some of the best solar companies in Pennsylvania to start your search.
For more detailed information about the program, please refer to the HEELP website.
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