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UK government aims to curb 'excess' tax relief from contingent assets

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UK - The Treasury will reduce the amount of tax relief granted to companies making asset-backed contributions - also known as contingent asset contributions  - with the aim of reducing “unintended” and “excess” relief to companies.

During today’s autumn statement by chancellor of the exchequer George Osborne estimated that this change would save the state around £500m (€582m) per annum in relief payments - with law firm Sackers noting its surprise at both the sum and the fact that the changes would take effect immediately.

The National Association of Pension Funds warned that such transfers would be used to guarantee pension payments, with chief executive Joanne Segars saying that the government should not attempt to “block” this route.

Consultancy PwC meanwhile said that the chancellor’s decision was not unexpected, noting the proposals similarity to ones outlined in a consultation document earlier this year.

Alex Henderson, partner at the firm, said that he expected asset-backed contributions to be of continued interest for pension funds and that many employers would be pleased by the “additional certainty” surrounding the new, specifically designed legislation.

KPMG struck a similar note, welcoming the clarification, while its pensions partner Mike Smedley noted that up-front corporation tax deductions would still be available “provided the arrangements are structured in the right way”.

However, he did anticipate a slowdown in the market. “There will be an immediate halt to some of the aggressive structures on the market that effectively generate a ‘double-dip’ on tax relief.”

Osborne further signaled the government’s resistance to a financial transaction tax - proposed by the European Commission in September - telling the House of Commons: “It is not a tax on bankers; it is a tax on people’s pensions.”

Segars agreed with the chancellor’s assessment, saying the government was “right to push back against these plans”.

“It would have hiked costs for many employers struggling with a weak economy while trying to provide a good pension. We understand the need to secure financial stability, but this is the wrong approach,” she said.

The NAPF, however, was critical of the government’s decision for no consumer prices index (CPI) linked gilts “in the near-term”, with the Treasury arguing in the full autumn statement this was “unlikely to be cost-effective and would involve a number of risks”.

Segars called on the Debt Management Office to instead increase the supply of retail prices index linked gilts - rising only by £1bn to 22% of all gilts issued.

“The small increases announced by Osborne do not go far enough,” Segars said.

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