• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Tax - investment income on pension funds

E

edcvfr

Member
According to this website:
http://www.pensionsadvisoryservice....a-pension/pensions-and-tax/tax-on-investments

Pension funds grow tax-free until benefits are withdrawn.

However, pensions business is non-BLAGAB, which is liable to corporation tax on its trading profits - which includes investment income. Does that mean that although investment income tax is not charged in the hands of the policyholder, the investment income is still taxed, but just as corporate profits?
 
Yes. We can consider this tax as falling on the shareholders. Keep in mind too that the Core Reading tells us that non-BLAGAB profits would be expected to be 0 for a mutual.

Best wishes
Lynn
 
Lynn Birchall said:
Yes. We can consider this tax as falling on the shareholders. Keep in mind too that the Core Reading tells us that non-BLAGAB profits would be expected to be 0 for a mutual.

Best wishes
Lynn
Click to expand...

Is this tax paid by the company expected to be less than tax paid by the individual if s/he just put the money into a savings account? (due to tax rates / investment income offset but expenses etc.)
 
I'd think of the comparison as something a bit more messy (sorry!):

Individual puts money into a savings account: potentially has to pay tax on interest. May / may not have to pay charges.
Individual puts money into a pension: no policyholder tax. Will have to pay charges (which will have been set to make an acceptable after-tax profit for shareholders)
 
Lynn Birchall said:
I'd think of the comparison as something a bit more messy (sorry!):

Individual puts money into a savings account: potentially has to pay tax on interest. May / may not have to pay charges.
Individual puts money into a pension: no policyholder tax. Will have to pay charges (which will have been set to make an acceptable after-tax profit for shareholders)
Click to expand...

Thanks! Just to clarify, on the CA1 Flashcard 7 of Chapter 3, it says that 'In the UK, pension contributions are usually tax-free, investment returns on accumulating pension funds are not taxed, but retirement proceeds are taxed'. So in what way is the investment returns tax free if the returns are still taxed as a non-BLAGAB fund?
 
Hello

I know it sounds strange, but it's because it's not the investment returns that taxed in the non-BLAGAB fund. It's the shreaholder profits that are taxed.

Imagine a UL policy. All the investment return directly increases the size of the unit funds. So, in the profit formula, the investment return would be offset by the increase in reserves. So, no tax would be payable.

Hope this helps
Lynn
 
Lynn Birchall said:
Hello

I know it sounds strange, but it's because it's not the investment returns that taxed in the non-BLAGAB fund. It's the shreaholder profits that are taxed.

Imagine a UL policy. All the investment return directly increases the size of the unit funds. So, in the profit formula, the investment return would be offset by the increase in reserves. So, no tax would be payable.

Hope this helps
Lynn
Click to expand...

That makes sense now! Thanks!
 
You must log in or register to reply here.
Back
Top