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Pensions tax relief measure to take effect from 29 November

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The government will deliver permanent reductions in spending, using the savings to fund infrastructure investment and support social mobility, HM Treasury announced in today’s autumn statement.

The Treasury has confirmed that draft legislation for Finance Bill 2012 will be published on 6 December, but gave further details of one measure that will take effect from today.

Legislation will ensure that tax relief obtained by employers under asset-backed pension contribution (ABC) arrangements‘ reflects accurately the total amount of payments the employer makes to the pension scheme directly or through a special purpose vehicle (for example a partnership)’.

George Osborne said: ‘We will take action to stop some large firms using complex asset-backed pension funding arrangements to claim double the amount of tax relief that was intended. This will save the Exchequer almost half a billion pounds a year.’

The Treasury announced: ‘Following consultation, to prevent employers gaining excessive tax relief for asset-backed pension contributions to their pension schemes, the government will introduce Finance Bill 2012 legislation that takes effect on 29 November 2011 to ensure no excessive relief can arise for new arrangements.

‘Transitional rules will apply to existing asset-backed arrangements that have already received tax relief to ensure the correct amount is given by the end of an arrangement.’

Mark Hoban, the Financial Secretary to the Treasury, said the government was ‘keen to continue to allow the use of asset-backed contributions, given the flexibility they can offer to employers and their pension schemes in managing pension deficits, while protecting the Exchequer from tax risks’.

Consultation on the measure took place between May and August.

Alex Henderson, Partner at PwC, noted that the Chancellor was looking to raise significant sums from the change ‘but it is not clear that there is that much revenue for him to go for, as most employers will have been looking simply to achieve what he is now proposing to allow’.

Next week’s announcements will set out the outcome of several recent tax policy consultations, and consultation on the FB 2012 measures is expected to run until 10 February 2012.