Clause 8 - Meaning of ''applicable year of assessment'' in section 7
Finance Bill
12:30 pm
Ivan Lewis (Economic Secretary, HM Treasury; Bury South, Labour)
The clause deals with the rules for deciding in which year the tax charge will occur. That year is referred to as the ''applicable year of assessment''. It may be useful to the Committee if I place on record the implications of the clause. In the majority of cases, the applicable year of assessment is the tax year in which the person becomes entitled to their social security pension, and it is based on the first day that a state pension is payable, as established by the Department for Work and Pensions.
The clause also provides rules for establishing the applicable year of assessment in specified circumstances. Crucially—the hon. Member for Cities of London and Westminster will approve of this—it provides flexibility by allowing people to take the lump sum in the year following what would be the normal year of assessment. That will help people who choose this option for the year following their retirement. That will become possible once the Secretary of State for Work and Pensions lays the necessary regulations enabling that choice; I understand that that will happen later this year. The provision may mean that a lower rate of tax is paid than would have been the case if a person had been assessed in the year of retirement. In this way, the tax rules are not a disincentive to taking the lump sum.
The clause also establishes the applicable year of assessment in cases where a person dies before taking a lump sum. There are rules that provide for cases in which the surviving spouse inherits the right to the lump sum, and also cases in which it is paid to the person's estate. This flexible approach to taking the lump sum underpins a real choice on taking retirement benefits, and I commend the clause to the Committee.