Is it time to cash in for a lump sum?
HMRC estimate that close to 300,000 people will decide to cash in annuities. HMRC anticipates that close to 300,000 people will decide to use the new legalisation that gives them the power to so sell their annuities to get a lump sum.
This is expected to happen when the second annuity market opens in the month of April in 2017. This will give people with existing annuity contracts the opportunity to get cash lump sums from their investments. According to a paper that was released recently, the tax authority declared that it believes that that about 300,000 out of a total of 5 million people who are annuity holders in the United Kingdom will decide to take choose this option. The tax authority also disclosed that it was going to tax them on their annuities based on their income tax band.
However, you have to keep in mind that this means that a person who pays 20 percent tax can be put into a higher rate band if he/she sell his/her annuity to get a significant cash lump sum. In other words, you will have to pay a higher tax rate if you get a large amount of money.According to the report, some of the individuals will decide to get a taxable lump sum. Their lump sums will be treated the same way as the taxable lump sums that are received under pensions.
The treasury had earlier predicted that the second hand annuity market will have the ability to raise 485 million in the period between 2017 and 2018. This is expected to be followed by 47m in the period between 2018 and 2019.
It is also expected that in the next two years, they will experience losses. The treasury expects that the scheme will make a loss of 150 million in the period between 2019 and 2020 and an additional loss of 145 million in the period between 2020 and 2021. HNRC estimates that it will cost 425,000 to install new and to improve existing computer systems. All this is expected to happen ahead of April, 2017. HMRC further expects to incur an additional cost of 2M before April 2017.
The head of the retirement policy, Tom McPhail predicts that the government is going to get a boost in its tax returns because of the new measure. The government is expected to collect more in terms of tax because of this new law. This is expected to be a big win for the government. It also gives annuity holder the ability to have better control over their revenue as well as the chance to earn more money in the process.
“Our own research shows a healthy appetite for the market, athough that will in the end depend on the kind of price that investors are offered in exchange for their annuity income”, said McPhail.
There are many answered questions with regards to market regulation and how consumers will be protected. Most people do not understand how consumer protection is going to work. Mc Phail said that the government needs to do everything in its power to ensure that the insurance companies will not take advantage of the investors.