Personal Finance Society news update from 2nd to 15th August
Taxation and Trusts
TAXATION AND TRUSTS
HMRC tax receipts hit a record
(AF1, AF2, JO3, RO3)
HMRC's annual report and accounts for 2016/17 reveal that HMRC
collected £566.8 billion in taxes in 2016/17, which is £33.1
billion more than in 2015/16.
These latest figures show that this is the seventh successive
year in which HMRC has brought in record tax revenues.
It would appear that 9.6 million taxpayers submitted their
self-assessment returns online by 31 January with 1.7 million
filing through their personal tax account - and over time with
making tax digital we should see a further increase in these
In addition, according to HMRC's Annual Report and Accounts 2016/17, HMRC
handled 91.7% of all customer calls during the last financial year
- despite setting itself a target of just 85% the previous
Edward Troup, executive chair and permanent secretary at HMRC,
"Our ability to collect the money required to fund the UK's
public services is, of course, the ultimate yardstick by which we
will be measured, but the public rightly judge us on the quality of
service we provide to the overwhelming majority of people in the UK
who are honest and pay the right amount of tax on time.
Our continued focus on giving our customers the service level
they deserve is paying dividends.
There are now quick and simple online tools to allow people to
deal with their taxes or tax credits anywhere, anytime and the best
phone service in years for those wanting to call us."
£4bn collected from accelerated payment
HMRC has collected more than £4billion through accelerated
payment notices (APNs).
As a reminder, APNs enable tax avoidance scheme users to pay
disputed tax 90 days before HMRC challenges the individual's scheme
Accelerated payment notices were introduced in 2014 and, to
date, more than 75,000 notices have been issued to people under
enquiry for using alleged tax avoidance schemes. HMRC has issued
notices on all schemes that were already under investigation at
It would appear that the average bill for large companies is £6
million while for individuals and small corporates it is
The right of beneficiaries to see trust
(AF1, JO2, RO3)
In a recent case, the beneficiaries of an offshore trust used
the Data Protection Act to obtain access to trust documents. The
Court of Appeal ruled that the legal professional privilege
exemption in England applied only to documents that would be
subject to legal professional privilege as a matter of English law,
regardless of the law governing the trust.
The case was Dawson-Damer & Ors v Taylor Wessing LLP
EWCA Civ 4.
The case was brought by beneficiaries of certain offshore trusts
established in the Bahamas. The defendant, Taylor Wessing LLP (TW),
is a well-known firm of solicitors which advised the trustee of the
The beneficiaries first attempted to obtain certain documents
from the trustee in theBahamasbut were not successful. They then
made a "subject access request" (SAR), under the Data Protection
Act 1998 (DPA), to TW.
Under the DPA, a data subject (here the beneficiaries) has a
right to be informed where personal data (of which he or she is the
data subject) is being processed by a data controller (here TW).
The data subject is then entitled to certain further information
and copies of the data. TW's initial response to the request was
that the information requested was subject to legal professional
privilege and therefore exempt from disclosure under the DPA.
The beneficiaries applied for a Court order that TW had failed
to comply with the SAR but, in 2015, the High Court agreed
with TW's position that (in summary) the legal professional
privilege exemption relied on by the firm applied where the
documents were not disclosable as between trustees and
beneficiaries as a matter of Bahamian law. There were some
other technical points relating to whether the purpose of making
the SAR was proper or not.
The Court of Appeal decided that the legal professional
privilege exemption applied only to documents that would be subject
to legal professional privilege as a matter of English law. This
means that a data controller in the UK cannot therefore rely on
more restrictive foreign rules regarding privilege to avoid
complying with a SAR. As such, TW, relying on the fact that it
considered the information was covered by the legal professional
privilege exemption, had failed to satisfy the Court that complying
with the SAR would involve disproportionate effort on its part.
Furthermore, there was no limitation in the DPA on the purposes for
which a SAR might be made and no rule that a data controller could
refuse to comply on the grounds of the requester's 'true
This case may be seen as a way around the established
limitations on the ability of a beneficiary to compel the
production of trust documents from a trustee as of right. Obviously
this will only be relevant where the trustees or their advisers are
in the UK. The law on what information a beneficiary is entitled to
see is rather complex, the most recent case on this being RNLI and
others v Headley and McCole (2016).
(AF1, AF2, JO3, RO3)
A query was recently raised with us which required clarification
of the top-slicing relief position on non-UK life policies, with
particular reference to excesses.
An excess arises under a non-qualifying life policy, such as a
single premium bond, when withdrawals in a policy year exceed the
cumulative unused 5% allowances for that year.
Top-slicing relief involves dividing the resulting chargeable
event gain (CEG) by the number of complete years the policy has run
before the CEG arises. The resulting fractional gain is used
to determine whether the CEG is subject to higher and/or additional
rate income tax - see
Under non-UK policies, for all CEGs occurring before 6 April
2013, the number of complete years for top-slicing relief could be
counted from inception to the date of the CEG. With an excess
the CEG is treated as arising on the last day of the policy
This position changed for non-UK policies issued on or after 6
April 2013, and for non-UK policies issued before 6 April 2013
which are varied, assigned or used as security (see details below)
on or after that date. For the first excess arising, the
number of complete years for top-slicing relief is still measured
from inception to the date of the CEG. However, for second
and subsequent excesses, only the number of complete years since
the last excess are used. This mirrors the position that has
always applied for UK (onshore) policies.
Under paragraph 7(2) Schedule 8 Finance Act 2013, a non-UK
policy issued before 6 April 2013 will be treated for top-slicing
relief purposes as if it was issued on or after 6 April 2013
(a) it is varied so as to increase the benefits payable (which
includes being varied by exercise of an option conferred in the
(b) there has been an assignment, by way of gift or for
consideration, of the whole or part of the rights under the policy
to the individual liable for the tax on the excess, or the deceased
in cases where personal representatives or trustees are liable for
tax on a gain which had arisen to the deceased. Assignment
here includes an assignment into or out of trust; or
(c) the whole or part of the rights under the policy become held
as security for a debt of the individual or the deceased (see (b)
In respect of other chargeable events, such as death giving rise
to the payment of benefits and full surrenders, the number of
complete years for top-slicing relief purposes is always counted
from inception to the date of the chargeable event for all non-UK
European corporate tax reform
Corporate tax reform appears to be strongly on the legislative
agenda in the EU.
The recent inability of the French government to prove that
Google's transactions (doing business in France) amounted to them
having a permanent establishment there is a major setback for the
(relatively) new government.
If successful (and an appeal is understood to be being lodged)
France could have claimed £1.1bn in back tax. Now it looks
like a (UK-like) discussion on a "voluntary" contribution from
Google (remember Starbucks?) is likely to be necessary.
Quite clearly, the ability to move multinationals' profits
between jurisdictions constitutes a "tax revenue sapping"
problem. The general view of nations is that, in principle,
economic activity should be taxed where it takes place.
Technology companies do not fit neatly into such a system
though. It seems that the scale of the sales Google declares
in France is clearly not commensurate with the scale of its
activities there. This inevitably causes public disquiet - to
put it mildly. The OECD estimates that some $100bn-$240bn of
revenues are lost each year due to the gaps in international rules
that allow corporate profits to be artificially shifted to tax
havens. And the rapid growth of the digital economy is a big
contributor to this.
Under the old rules of "establishment" countries are finding it
difficult to levy the tax they believe is truly due. The UK
has brought in the diverted profits tax on profits it believes to
have been artificially diverted. India has also introduced
its own "equalisation levy".
It is accepted, though, that a truly effective solution depends
on concerted international action. Last month 70 countries
committed to sign a new pact tackling tax avoidance, which should
in theory resolve some of the thorniest issues. But key countries,
such as Ireland and Luxembourg, have not yet signed up to all of
its provisions and there are plenty of outstanding issues.
Nor has the US signed the accord. This may not be a big
problem, but the US approach of taxing worldwide income gives
Washington little reason to help other countries increase their tax
take from US companies it believes to be unfairly targeted.
And the EU has been active. For example, the European
Commission last year invoked State aid rules to strike at Apple's
tax arrangements in Ireland. Unusual, as tax policy has
largely been a matter for the tax authorities of the countries
involved - not the EU.
Indexation allowance and the retail prices index
(AF4, FA7, LP2, RO2)
We remarked back in March that the Office for National
Statistics (ONS) had revamped its monthly inflation release to
place primary emphasis on CPIH, rather than the more widely used
CPI. CPIH is the Consumer Prices Index including Owner Occupiers'
Housing Costs. As such it is a variant of the CPI which includes a
measure of the costs associated with owning, maintaining and living
in one's own home, along with Council Tax. Both factors are absent
from the CPI, but that Index does include "actual housing rental
costs" with a 7.1% weighting. However, at the time CPIH was under a
cloud. In September 2016 the UK Statistics Authority (UKSA)
had reviewed CPIH and deemed it not to be an official National Statistic.
At the end of July, after a further review, the UKSA has decided
to designate CPIH as a National Statistic.
Unsurprisingly, the ONS has welcomed the UKSA's change of heart, which
comes after the ONS had responded to the UKSA's earlier criticisms.
The formal nod now given to CPIH raises two interesting
- Will it replace CPI? CPI started life as the Harmonised Index
of Consumer Prices (HICP), an EU standardised measure of inflation.
It first gained attention in the UK when it became the yardstick
for the Bank of England's inflation target in January 2004,
replacing RPIX (RPI less mortgage costs). It then received a
further boost when George Osborne switched a variety of indexation
measures, including public sector pensions and income tax
allowances, from RPI to CPI. The move was a money saving measure,
as RPI has historically outpaced CPI (eg by 0.5% pa over the last
ten years, a period distorted by falls in mortgage rates, and 0.8%
pa over the last five years). The March Budget assumption by the
OBR was that RPI would be running at 1.2% pa above CPI by 2022.
The ONS says that CPIH "offers the most comprehensive picture of
how prices are changing in the economy", which suggests it could
replace CPI. The government may be tempted to make the change,
given that CPIH has marginally underperformed CPI over the long
term by 0.1% pa over ten years Over five years both register an
average of 1.6%.
- What happens to RPI? RPI is not a National Statistic and even
the ONS says "RPI is not a good measure of
inflation and we discourage its use". However, the RPI has a long
track record and is still used for indexation purposes by the
government where its higher-than-CPI effect is revenue-enhancing,
eg in setting student loan interest rates, excise duty and rail
fare increases. The RPI is also the indexation basis for a little
over £400bn of index-linked gilts.
In a recent article, the economics editor of the Financial Times,
Chris Giles, was bitterly critical of the continued use of the RPI
and called for its replacement with the CPI. He pointed out that
for 94% of index-linked gilt holders, the original gilt
prospectuses allowed the government to use a replacement inflation
index if RPI were abolished. For the other 6% - just three issues -
the government would have to offer holders the option of redemption
at their indexed par values, which would be less than current
If you were the cash-strapped Chancellor, shaving that OBR
differential of 1.2% a year from over £400bn of debt could have a
A move to CPIH will be a point to watch for in the Autumn
After last week…
(AF4, FA7, LP2, RO2)
The Donald and Kim Show gave the equity markets something to
shake their Summer complacency last week. However, look beyond the
nuclear sabre rattling and most equity investors should still be
showing gains over the year to date.
Week to 11/8/2017
Year to Date
Euro Stoxx 50 (€)
Kospi (South Korea)
MSCI Emerg Markets (£)
Brent Crude ($)
Iron Ore ($)
A few points to note are:
- The South Korean market, as measured by the Kospi, suffered
over the past week, as might be expected. Nevertheless, it is still
one of the strongest performers of 2017. The performance of
Samsung, which accounts for over a quarter of the index, has
helped. Emerging markets generally (a classification in which MSCI
still includes South Korea) have enjoyed a strong 2017.
- Sterling had a particularly bad week against the Yen, which is
for now regarded as one of the 'safe haven' currencies (despite its
relative proximity to North Korea).
- Over 2017 sterling has been declining sharply against the euro,
but appreciated against the US dollar. That may go some way to
explaining why the FTSE 100 has underperformed the more
domestically-oriented FTSE 250.
- Last Thursday the likes of Shell, BP and Rio Tinto went xd.
According to the FT, 41 of the 108 points fall in the Footsie on
that day was due to major constituents going xd.
- The US market had been particularly quiet prior to the Korean
shouting match, so was arguably ready for a shakeout. A
little over a fortnight ago the Vix, Wall Street's "fear gauge",
hit a record intraday low, while the S&P 500 had enjoyed a
record breaking 15 consecutive day run of movements below
- Bonds yields generally dropped over the week, with the 10 year
German government Bond now yielding 0.38% (against 0.11% at the
start of the year). The corresponding figures for UK gilts are
1.11% and 1.24% and for US T Bonds 2.19% and 2.46%.
August is often a month of thin trading volumes, which can mean
market movements are exaggerated.