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HMRC anticipates 300,000 will cash in annuities

HM Revenue and Customs is expecting as many as 300,000 people to utilise new legislation that will enable them to sell their annuities for a cash lump sum.

The second-hand annuity market is due to open in April 2017, giving people with existing annuity contracts the ability to cash in their investments.

In a paper released this week, the tax authority said it believes 300,000 people out of five million annuity holders across the UK will take up this option, confirming that it would tax people on their annuities at their existing income tax band.

However, this also means that someone who currently pays 20 per cent tax could be purchase into a higher rate band if they sold their annuity for a significant sum.

The report said: “Some of these individuals will choose to receive a taxable lump sum and these lump sums will be treated for tax purposes in the same way as taxable lump sums received under pensions flexibility more widely.”

Previously, the Treasury had predicted the second hand annuity market would raise £485m in 2017-18, followed by an additional £475m in 2018-19.

However, after the first two years of the scheme it expects to make a loss of £150m in 2019-20 and £145m in 2020-21.

HMRC expects the policy will cost £425,000 to improve and install computer systems to administer it ahead of April 2017 and a further £2m in additional costs.

Tom McPhail, head of retirement policy, Hargreaves Lansdown, forecasts the Government will experience a boost to its tax returns as a result of the new measure.

“This is potentially a double win for the Government, giving annuity holders the chance to exercise more control over their savings, and raising extra revenue in the process,” said McPhail.

“Our own research indicates a healthy appetite for this market, though that will in the end depend on what kind of price investors are offered in exchange for their annuity income.

“There are still unanswered questions around the regulation of the market and how consumer protection could work; we need to make sure investors don’t end up getting ripped off by their insurance company, for some of them possibly not for the first time.”

Image: Got Credit

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