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My PFS - Technical news - 11/04/16

Personal Finance Society news update from 29 March 11 April 2017.

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Taxation and Trusts

Investment planning



IHT Receipts Predicted To Leap By £1.5bn In Five Years

(AF1, RO3)

Included in the Office for Budget Responsibility's (OBR) Economic and Fiscal Outlook report, which was published alongside the Spring Budget 2017, was the Public Finances Databank. 

The OBR noted that

"IHT receipts were unusually high in 2015-16, reflecting more deaths in 2014-15 (the majority of IHT receipts are received with a 6 to 12-month lag) and a number of payments from very high value estates. Receipts have been revised up over the forecast period due to slightly higher equity and house prices".

This has led to the statement that "receipts from inheritance tax (IHT) are expected to rise by just 1.0 per cent to £4.7 billion in 2016-17".

Tax Year

Inheritance tax £bn









2016-17 Forecast


2017-18 Forecast


2018-19 Forecast


2019-20 Forecast


2020-21 Forecast


2021-22 Forecast


The OBR also factored in the UK government's plans to change the fees payable for an application for a grant of probate. The new rates come into effect in May and range between £300 and £20,000, depending on the value of the estate. This reduced the OBR's inheritance tax forecast by around £30m a year to "reflect the incentive for individuals with estates worth close to the thresholds in the new probate fee structure to reduce the value of their estates to remain within a lower fee band"

The predicted rise in the inheritance tax take creates an opportunity for financial planners to discuss strategies with their clients to ensure all the allowances, exemptions and reliefs are secured including gifting, trusts and tax wrapper utilisation.

The legality of the probate fee increase questioned by the parliamentary joint committee

(AF1, RO3) 

The Parliamentary Joint Committee on Statutory Instruments (the SI Committee) has attacked the legal basis of the government's increased probate fees due to apply from May 2017. 

The new fee scale raises application fees - from a flat charge of either £155 or £215 for all estates - to a banded system, with a maximum of £20,000 for estates worth over £2 million. 

The proposal to link probate fees to the value of the estate attracted overwhelming opposition but, in February 2017, the Ministry of Justice confirmed its aim to introduce the probate fee scales in May 2017 by means of a statutory instrument (SI). 

The corresponding SI was tabled in the form of the Non-Contentious Probate Fees Order 2017 and was examined by the SI Committee. Most SIs pass this scrutiny as a matter of routine, but in this case the Committee has taken exception. 

The SI Committee says the new charges are 'a tax' rather than fees, being far in excess of the amount necessary to cover the cost of the service. 

The Ministry of Justice has defended the charges on the grounds that it is "fair and proportionate" that those who can afford to use the Courts should make a greater contribution to their overall funding.

However, the SI Committee said it was doubtful whether the relevant legislation empowers the Lord Chancellor to impose charges of the 'magnitude proposed by the draft order'.

The government must now decide whether or not to proceed with the SI. The SI Committee does not have the power to block it, but can draw Parliament's attention to its failings and invite full Parliamentary scrutiny.

Given the timing, it will be interesting to see whether or not the government does proceed with the SI. 

Collective investments - gross interest payments

(AF4, FA4, FA7, LP2, RO2)

A reminder that from 6 April 2017 (tax year 2017/18) the requirement to deduct basic rate tax at source from interest payments made by open-ended investment companies, authorised unit trusts, investment trust companies and peer-to-peer loan arrangements is abolished.

This brings the tax treatment of these interest payments into line with those made by banks, building societies and National Savings and Investments which have paid interest gross from 2016/17 following the introduction of the Personal Savings Allowance. 


Trump's first full quarter

(AF4, FA7, LP2, RO2) 

The first quarter of 2017 is over, with the final days marked by the invocation of Article 50 and President Trump's failure to overturn Obamacare. A look at how the markets fared in the first three months of 2017 reveals that investors generally did well, as the table below shows:







Change in Q1


FTSE 100





FTSE 250





FTSE 350 Higher Yield





FTSE 350 Lower Yield





FTSE All-Share





S&P 500





Euro Stoxx 50 (€)





Nikkei 225





Shanghai Composite





MSCI Emerg Markets (£)





UK Bank base rate





US Fed funds rate




ECB base rate





2 yr UK Gilt yield




10 yr UK Gilt yield





2 yr US T-bond yield





10 yr US T-bond yield





2 yr German Bund Yield





10 yr German Bund Yield




















Brent Crude ($)





Gold ($)





Iron Ore ($)





Copper ($)





A few points to note from these numbers are:

  • The FTSE 100 spent the entire quarter above 7,000, only just dipping below 7,100 at the end of January.
  • The FTSE 250, often regarded as a better yardstick for UK plc (although about half of its total revenues still come from overseas), outpaced the FTSE 100 in this quarter. Some of the FTSE 100's relatively slower performance is down to the two oil majors, BP and Shell, both of which suffered from the falling oil price.
  • The US market rose by 5.6% in the first two months of the year, as the "Trump trade" yielded regular market peaks. However, in March Wall Street flatlined as the Fed raised rates by 0.25% and The Donald's ability to pass legislation came into question.
  • The Eurozone, like the UK, again seems to have put Brexit concerns to one side. Overall, European markets outpaced the US, even before the euro's appreciation against the dollar is considered.
  • Bond yields mostly ended the quarter barely changed, despite the US Federal Reserve's increased commitment to raising rates three times in 2017.  The steadiness of UK rates was a little surprising given the inflation background: annual CPI jumped from 1.2% (November 2016) to 2.3% (February 2017) across the three months.
  • Sterlingappreciatedagainst the dollar and was virtually unchanged against the euro over the quarter. The shock of Brexit appears to have been absorbed, at least for the time being. Nevertheless, the falls in sterling in the wake of last June's vote are still working their way through to retail inflation. 
  • Commodities were mixed.  Brent Crude was down over the quarter, but remained above $50 a barrel throughout. Gold rose over 7.5%, despite the spectre of rising US interest rates, which would normally dampen the yellow metal's prospects.

The second quarter will bring the French elections and further tests of Trump's ability to govern, as opposed to campaign. That could introduce more volatility, which has been markedly absent.     

The March inflation numbers

(AF4, FA7, CF2, RO2)

The Consumer Price Inflation (CPI) for March showed prices rising by 0.4% over the month, the same as the rise between February 2016 and March 2016. The consensus had been for a 2.3% annual rate, so there was no reaction in the markets. The CPI/RPI gap narrowed by 0.1% over the month, with the RPI down 0.1% on an annual basis to 3.1%. Over the month alone, the RPI was up 0.3%.

The Office for National Statistics (ONS) newly favoured CPIH index was also flat at 2.3% for the year. The unchanged number was due to a balance between upward and downward factors: 


Food and non-alcoholic beverages: Overall prices rose by 0.4% between February 2017 and March 2017, compared with a 0.7% fall a year earlier. The ONS notes that it was the first time in seven years that food prices (up 0.6%) have risen between February and March. The rises were wide-ranging across all food categories. 

On an annual basis, food price inflation jumped to 1.3% in March 2017, reinforcing the idea that February marked the end of a long period of falling food prices.

Alcohol and tobacco:Overall prices rose by 1.7% between February 2017 and March 2017, compared with a 0.3% fall a year earlier. The ONS says the year on year difference is attributable to the timing of the introduction of Budget duty changes, which last year were picked up in the April inflation figures.

Clothing and footwear:Overall prices rose by 2.0% between February and March this year compared with 1.0% a year ago. The effects are spread across a wide range of items, principally in women's clothing.

Miscellaneous goods and services: This category experienced an overall price rise of 0.6% between February and March 2017, the largest price rise between February and March since the CPIH first started to be measured in 2005. The greatest individual effect came from jewellery, clocks and watches though there were small upward contributions from a variety of groups.


Transport:Overall prices fell by 0.5% between February 2017 and March 2017, compared with a 1.6% rise a year earlier. The timing of Easter in March 2016 contributed to air fares rising by 22.9% on the month whereas, this year, Easter is in April and instead fares fell by 3.9% between February and March. Prices of motor fuels also fell between February and March this year reflecting falls in global oil prices whereas prices rose a year ago. Petrol fell by 1.0 pence per litre this year but rose by 0.9 pence per litre a year ago. Similarly, diesel fell by 1.1 pence per litre this year but rose by 2.0 pence a year ago.

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) was down 0.2% at an annual 1.8%. All twelve Index components were in positive annual territory, underlining how broadly the inflation picture has changed. Goods inflation rose by 0.6%, moving from 1.9% to 2.5%, while services inflation decreased by 0.7% to 2.1%.

Producer price inflation (PPI) continued to signal problems down the road. The input PPI figure dipped from 19.1% in the year to February 2017 to 17.9% in the year to March 2017. Output price (aka factory gate price) inflation fell marginally from 3.7% to 3.6%. The large gap between the two is explained by a combination of hedging, time lags and the probable absorption of some cost increases. Input prices are generally much more volatile than the output numbers.

The annual CPI figure was unchanged, as expected, but the likelihood remains of further increases throughout the rest of 2017. April will probably see a jump as Easter air fare rises return to the annual calculation. At 2.3%, inflation now matches the latest regular pay growth rate reported by the ONS (for January 2017). It is little wonder the British Retail Consortium is recording sales growth in the last quarter of just 0.1%: the squeeze is on.


Pension schemes newsletter 85 published

(AF3, FA2, JO5, RO4, RO8)

HMRC has recently published Newsletter 85 which covers:

  • Spring Budget 2017
  • Qualifying recognised overseas pension schemes (QROPS)
  • Pension flexibility - reporting of non-taxable death benefits through Real Time Information (RTI)
  • Relief at Source
  • Scottish rate of Income Tax
  • Lifetime Allowance
  • Pension scheme registrations

Of notable interest -

Overseas Transfer Charges on QROPS  - Details of the charges applicable to certaintransfers to QROPS, including links to legislation and forms required. These charges came into effect from 9th March 2017.

Taxation of Overseas Pensions - Changes are being brought in from 6th April 2017 to more closely align the taxation of foreign pensions with UK. The changes are designed to remove some if the inconsistency between foreign and UK pensions and to close some gaps that arise because of only parts of the UK tax regime applying.

The changes will

  • bring foreign pensions and lump sums paid to UK residents fully into tax;
  • close specialist pension schemes for those employed abroad ('section 615' schemes) to new saving;
  • extend UK taxing rights from five to ten tax years over non-UK residents' foreign lump sum payments out of funds transferred out of the UK from relevant non UK schemes (RNUKS);
  • extend UK taxing rights so that they apply to payment out of a QROPS in the five years after a transfer;
  • align the tax treatment of funds transferred between registered pension schemes;
  • update the conditions foreign schemes must meet to get UK tax relief on contributions and transfers by removing the requirement for 70% of transferred funds to be used to provide the member with an income for life; and
  • bring the pension age test in line with registered pension schemes.

In addition, the country of establishment rules will change so that a ROPS must be established in:

  • either an EU member state (other than UK), Norway, Liechtenstein or Iceland;
  • a country or territory with which the UK has a double taxation agreement; or
  • a country or territory with which the UK has a tax information exchange agreement (TIEA)

Changes to the publication of the ROPS list-As a result of the changes announced at Spring Budget 2017 and the further changes taking effect from 6 April 2017, we will be publishing updates to the ROPS notifications list as follows:

  • 15 March 2017 - routine publication of the ROPS notifications list
  • 6 April 2017 - routine publication of the list will be rescheduled from 1 April to 6 April 2017 to tie in with the start of the 2017 to 2018 tax year
  • 14 April 2017 - we will suspend the ROPS notifications list
  • 18 April 2017 - we will publish an updated list
  • 1 May 2017 - routine publication of the ROPS notifications list

Pension flexibility - reporting of non-taxable death benefits through Real Time Information (RTI)- HMRC have now completed investigations and are currently working on a solution. However, the solution will not be ready for the start of the 2017 to 2018 RTI reporting year, so for now scheme administrators should continue to follow the guidance in Pension schemes newsletter 78.

HMRC want to remind scheme administrators that this guidance only applies to death benefit payments where the whole of the payment is non-taxable. All other payments including non-taxable elements should continue to be reported as per previous guidance. 

HMRC will provide a further update and guidance as soon as we can in a future newsletter. We will work with scheme administrators to give you as much time as possible and consider workarounds if necessary. 

Relief at source - In January 2016 HMRC issued notices requiring pension schemes operating Relief at Source to submit their annual return of individual information for tax year 2015 to 2016 by 5 October 2016.

HMRC reminded scheme administrators that failure to submit the annual return of individual information by the deadline will hold up any subsequent interim repayments pending receipt of the outstanding information. Where a submission is made but fails processing, HMRC still deem this to be outstanding and will stop any subsequent interim repayment claims pending successful re-submission.

If failure occurs on the third submission HMRC will stop all future interim repayments until a further re-submission is received and is deemed successful.

Since October 2014 HMRC stopped a number of interim repayment claims for non-submission or submission failure and where possible, and have worked closely with pension scheme administrators to help them meet their obligations.

For pension scheme administrator operating a relief at source pension scheme that has not yet  received a notice requiring a submission for 2015 to 2016, email and put 'Relief at Source' in the subject line of your email.

Change of deadlines - In Pension schemes newsletter 75 HMRC stated that the filing deadline for the annual return is being brought forward from October to July each year and they   changed the date that the notices are issued to provide this information to January in preparation for the introduction of the July filing deadline.

Information notices for the 2016 to 2017 annual return of individual information will be sent out by the end of January 2017 and the 2016 to 2017 tax year the filing deadline for the annual return is 5 July 2017.

Scottish Rate of tax - HMRC are continuing to work closely with the pensions industry to understand the impacts of the introduction of the Scottish rate of income tax on both business processes and systems. In particular their work has focused on how:

  • scheme administrators will submit the annual return of individual information to HMRC in future
  • HMRC will notify pension scheme administrators of their members' taxpayer status (Scottish or rest of UK)
  • scheme administrators can determine the status for a new scheme member or a member that has started to re-contribute to their scheme following a period of non-contributions

As mentioned above the reporting dates for filing deadline for submission of the 2016 to 2017 annual return of individual information has changed to 5 July 2017. This has been changed this so that HMRC can review member information submitted and advise pension scheme administrators whether or not the taxpayer is UK resident for tax purposes before the start of the next tax year.

Once information provided in the 2016 to 2017 annual return of individual information HMRC will give you a report of the taxpayer residential status. This report will be issued through the SDES and will provide the information required to give members the right amount of basic rate tax relief on their pension contributions for 2018 to 2019. The aim is to do this in January 2018.

Lifetime Allowance  - Reminder for the deadline of IP2014 applications is 5th April 2017.

Pension schemes newsletter 77, we have been reviewing the Event Report. Because this work is ongoing HMRC have not updated the Event Report for 2017 to 2018 to include the new lifetime allowance protection regimes.

This means that if you have to report details of your members who have relied on IP2014 (applied for using the digital service), fixed protection 2016 or individual protection 2016 you will need to email HMRC at and put 'Lifetime Allowance 2017 to 2018 Event Report' in the subject line of your email.

Pension scheme registrations - HMRC have been receiving calls chasing registration of schemes, in this newsletter they remind those applying for registration that they may request additional information.

HMRC haven't decided within 6 months of receiving the application you can appeal to a tribunal as if we they had told you that they had decided not to register the scheme.

Auto Enrolment annual thresholds 2017/18

(AF3, FA2, JO5, RO4, RO8)

The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2017/394 has now been laid before Parliament is effective from 6th April 2017.

The statutory instrument sets out revised amounts for the 2017/18 tax year for the upper and lower thresholds of the automatic enrolment qualifying earnings band and rounded figures for the earnings trigger and qualifying earnings band:

  • £45,000 for the upper limit of the qualifying earnings band;
  • £5,876 for the lower limit of the qualifying earnings band.
  • The automatic enrolment earnings trigger will be frozen at £10,000.

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