We use some essential cookies to make this website work.
We’d like to set additional cookies to understand how you use GOV.UK, remember your settings and improve government services.
We also use cookies set by other sites to help us deliver content from their services.
You can change your cookie settings at any time.
Departments, agencies and public bodies
News stories, speeches, letters and notices
Detailed guidance, regulations and rules
Reports, analysis and official statistics
Consultations and strategy
Data, Freedom of Information releases and corporate reports
Published 15 March 2023
© Crown copyright 2023
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/further-tax-provisions-for-income-tax-and-inheritance-tax-in-connection-with-the-dormant-assets-scheme/tax-provisions-in-connection-with-the-dormant-assets-scheme
Individuals who have identified pensions and other assets that have been transferred into the Dormant Assets Scheme. It also affects personal representatives and beneficiaries of deceased individuals if their assets were considered dormant and transferred to an authorised reclaim fund.
This measure ensures that payments from an authorised reclaim fund in respect of a pension asset are treated for the purposes of Income Tax as if they were from the pension asset that was initially transferred.
The legislation also includes a provision which will ensure that where an asset has been transferred to an authorised reclaim fund and its owner was alive at the time of transfer but subsequently dies before the asset has been reclaimed, the owner will be treated for Inheritance Tax (IHT) purposes as still owning the original asset.
This measure will ensure that the act of reclaiming pension assets from an authorised reclaim fund are tax neutral for Income Tax purposes. This will provide certainty that the tax treatment remains constant for all those involved and give pension institutions the confidence that they can return a reclaimed asset to a beneficiary as if it were the original pension.
For IHT purposes, this measure will ensure that the amount in an authorised reclaim fund will be treated in the same way as the original asset in circumstances where the original owner is alive at the time of transfer but subsequently dies before the asset has been reclaimed.
The existing Dormant Assets Scheme has been in operation since 2011 and enables banks and building societies to channel funds from dormant bank and building society accounts towards good causes. In 2021, following a consultation, the government announced its intention to expand the scheme to include certain assets from the pensions, insurance, investment and wealth management and securities sectors to be used for public benefit, whilst protecting the original asset owners’ legal right to reclaim the amount that would be due to them had a transfer into the scheme not occurred.
The main features of the expanded Dormant Assets Scheme, introduced by the Dormant Assets Act 2022, mirror those of the original scheme. Once an institution (such as a pension scheme) transfers an asset to an authorised reclaim fund, any liability pertaining to the transfer, including any liability to meet reclaims, is extinguished and the reclaim fund takes on the liability.
At the Tax Policies and Consultations update on 23 March 2021 the government announced its intention to amend tax legislation to assist with the expansion of the Dormant Assets Scheme. Legislation was introduced in Finance Act 2022 which amended Finance Act 2008 to reflect the expansion of the scheme by the Dormant Assets Act 2022. The Taxation of Capital Gains Act 1992 was also amended to apply to the wider range of assets now included in the scheme.
The revisions enacted by the measure to Part 4 of Finance Act 2004 will have effect on and after the date of Royal Assent of Spring Finance Bill 2023. The revisions to Inheritance Tax Act 1984 will be backdated to have effect from 6 June 2022.
Section 1 of Dormant Asset (DA) Act 2022 sets out the expanded scheme and covers the relationship with the Dormant Bank and Building Society Accounts Act 2008.
Sections 5, 6 and 7 of DA Act 2022 sets out the transfer of pension assets to the Dormant Assets Scheme/Reclaim Fund, what are eligible pension benefits that can be transferred and the meaning of dormant in respect of pension assets.
Section 5(1) of DA Act 2022 sets out that the section applies where a pension scheme transfers an eligible asset to an authorised reclaim fund and the fund consents to the transfer. Section 5(2) and 5(3) provides for the transfer of legal liability from the pension institution to an authorised reclaim fund for the different types of assets set out in Section 6(1). Section 5(4) and 5(5) set out what is a ‘pension institution’ for the purposes of this act.
Sections 2 (Transfer of eligible insurance proceeds to reclaim fund), 8 (Transfer of eligible amount owing by virtue of a collective scheme investment to reclaim fund), 12 (Transfer of eligible client money to reclaim fund) and 14 (Transfer of eligible proceeds or distribution to reclaim fund) of the DA Act 2022 set out and applies to transfers of assets other than pension assets.
A new section 274ZB will be added to Part 4 of Finance Act 2004 which will mean that for the purposes of Income Tax, the amount paid out of the Dormant Asset Scheme will be treated as the same as the rights held against the original pension institution, with the same characteristics for tax purposes.
A new section 159A will be added to Inheritance Tax Act 1984 which will mean that, where the original asset owner dies following a transfer of assets to an authorised reclaim fund, and no claim is made prior to their death, they will be treated as if they still owned those original assets for IHT purposes. This will confirm that the treatment of certain types of assets for the purposes of the IHT legislation is preserved.
This measure is expected to have a negligible impact on the Exchequer.
This measure is not expected to have any significant economic impacts.
This measure will impact individuals who wish to reclaim assets that have been transferred to the Dormant Assets Scheme. It will make sure that the reclaimed asset will be treated as if it was the original asset for IHT purposes where the owner was alive at the time of transfer but dies before the asset is reclaimed. For Income Tax, it will ensure that payments from an authorised reclaim fund are treated as if they were from the original pension asset that was initially transferred.
This will provide certainty that the tax treatment of reclaimed assets remains constant for all those involved.
The measure is not expected to impact on family formation, stability or breakdown.
This measure is expected overall to have no impact on individuals’ experience of dealing with HMRC as the change doesn’t change any processes or tax administration obligations.
It is not expected that there will be adverse effects on any group sharing protected characteristics.
There is no impact on businesses as this measure only affects individuals.
This measure is not expected to impact civil society organisations.
HM Revenue and Customs will not incur any costs implementing this change.
Other impacts have been considered and none have been identified.
This measure will be kept under review through communications with affected taxpayer groups.
If you have any questions about this change, please contact the Pensions Policy Team on at email: pensions.policy@hmrc.gov.uk.
Don’t include personal or financial information like your National Insurance number or credit card details.
To help us improve GOV.UK, we’d like to know more about your visit today. We’ll send you a link to a feedback form. It will take only 2 minutes to fill in. Don’t worry we won’t send you spam or share your email address with anyone.
