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My PFS - Technical news - 16/08/16

Personal Finance Society news update from 3 August to 16 August 2016 on taxation, retirement planning and investments.

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Taxation and Trusts

Investment planning



The cost of tax reliefs is put under scrutiny

(AF1, AF2, RO3, JO3)

The National Audit Office (NAO) has called for more scrutiny of tax reliefs generally and specifically the capital gains tax relief which is available to people selling their main home and apparently costs the exchequer £18bn a year.

The NAO said that monitoring of tax reliefs was "not yet systematic or proportionate to their value or the risks they carry".  "Reliefs reduce tax bills and may be exploited or used in ways which parliament did not intend," it said.

Altogether, tax reliefs cost more than the budget of any government department and MPs, lawyers and think-tanks have questioned their effectiveness and value for money.

The cost of exempting main residences from capital gains tax rose from £10.5bn to £18bn in the four years to 2015/16 as house prices went up.  It was the biggest factor in a 13 per cent rise in the cost of reliefs - to £117bn - during the past four years.

The NAO said the £1.7bn increase in the cost of principal private residence relief between 2014/15 and 2015/16 had not been explained by HM Revenue & Customs and the costs were not monitored by its policy team.

It said there was scope for the misuse of the relief, given its scale, the complexity of the rules and the lack of reporting requirements.  It noted that the number of buy-to-let landlords had risen significantly in recent years and said the eligibility rules for the relief were not always straightforward.  "There are several restrictions and related reliefs which allow individuals to claim relief for two homes concurrently.  This means more scrutiny may be needed to ensure people are following the rules correctly," the NAO said.

HMRC said the rise in the cost of the relief was because house prices had gone up and there have been more sales.  It said: "We ensure the right capital gains tax is paid through reviewing the data we hold and cross-checking it against third-party information.

We also carry out targeted campaigns … where we use our own analysis to reach people we believe should have declared a gain but did not, and to raise awareness about the rules."

The NAO said it had found examples of good practice in the way HMRC monitored the cost of reliefs though.  It said specialist units checked all claims concerning the "patent box" (a tax relief on profits from intellectual property), creative industry reliefs, including breaks for makers of high-end television shows, and venture capital schemes.

HMRC had been able to detect unusual changes in the costs of these reliefs and respond in cases where it monitored costs over time.

The NAO said the sheer number of tax reliefs meant it would be impractical for HMRC to administer each one individually, adding that in many cases the costs of doing so could outweigh the benefits.

HMRC recognised the need to take a risk-based approach to manage reliefs proportionately and had introduced new guidance that focused on new tax reliefs, which tend to carry greater uncertainty and risk.

But the NAO warned that older tax reliefs could present risks too.  It said that "changing trends can lead to increased take-up or they can become the focus of tax avoidance schemes".

Worryingly for business owners, the NAO said HMRC was planning an extensive review of entrepreneurs' relief.  The use of so called "money boxing" has already been the subject of debate and likely action.

The NAO had previously raised concerns that entrepreneurs' relief was costing three times more than expected, although the government has since introduced changes to reduce its cost and it is understood that there is no general HMRC concern about the fundamental principle of the relief- some form of which has been available for many years.

The fundamental point underlying the NAO concern is that there should be a very regular "cost/benefit" analysis applied to tax reliefs.  It is hard to argue with this principle.

Tax reliefs are generally introduced in order to change taxpayer behaviour.  A regular assessment of whether targeted behavioural changes have been secured or not seems essential given the cost of many reliefs. 

The cost of pensions tax relief (>£30bn) has had very high publicity over the past year or so.  The Centre for Policy Studies clearly had this very much in mind in making their recommendations for an alternative means of pensions saving in their "ISA Centric Savings World" document.

Higher rate taxpayers hit record levels

(AF1, RO3)

According to HMRC and the Institute for Fiscal Studies (IFS) the number of Britons paying income tax at the higher or additional rate is estimated to have reached a record 5m people last year as the UK's tax revenues become increasingly reliant on high-income individuals.

HMRC data shows that increasing numbers of people are being swept into higher and additional rate tax bands, where they pay income tax at 40 per cent and 45 per cent respectively.

However, the statistics also show that more than a million fewer people will pay income tax this year than they did when the coalition government came to power, although low-paid workers are still caught in the net of National Insurance contributions.

It was the Liberal Democrat party pledge in 2010 - that proved so popular that the Conservatives adopted it as their own - to raise the personal allowance and take millions out of tax altogether.

And it has an effect: 31.3m people paid income tax in 2010/11, but this year, just 30.1m will.  Without the discretionary increases in the personal allowance introduced by the coalition and Conservative governments, the figure would instead have risen significantly.

This means that there are now 23m adults in the UK whose income is sufficiently low that they do not pay income tax.  A third of men and half of women will pay no income tax at all this year.

But a significant minority of these still have to pay National Insurance contributions.  These are people earning between around £8,000 and £11,000 and aged under the state pension age.  The Institute for Fiscal Studies estimated that there were a minimum of 1.2m people in this situation in 2014.

Income tax revenues of £182bn are expected to be collected in 2016/17, according to forecasts from the Office for Budget Responsibility, meaning that each person who pays income tax will pay an average of just over £6,000.  But, in reality, the payments are far from evenly distributed.  Revenues are very reliant on the behaviour of a relatively small number of high-income individuals.

The top 10 per cent of people who pay income tax - people with annual income in excess of £54,300 - receive a third of total income, but pay almost three-fifths of the tax.  This is part of a wider trend towards greater reliance for tax revenues on a small group of wealthy, high-income individuals.

While the total number of people paying income tax has fallen over recent years, there has been growth in the number of people aged 65 or over who pay income tax - rising from 4.9m in 2010/11 to 5.9m this year - while the number of people aged under 65 who pay income tax has fallen from 26.4m to 24.1m.  This partly reflects the UK's ageing population - there are now 1.6m more people aged 65 and over than there were six years ago - but it also reflects the fact that pensioner incomes have been growing significantly faster than those of working age households in recent years.

The above-mentioned "top 10% of taxpayers" are more likely to need and want financial advice - and, importantly, have the means to pay for it - regardless of the way that payment is facilitated.

It's an undeniable fact that the more intense and meaningful a problem (like tax) becomes, the more interested an individual will be inlegitimatelyavoiding it.

The italicised "legitimately" is especially important to emphasise as very few now will want to enter into aggressive schemes that will eventually lead to conflict with HMRC - regardless of the level of "tax pain" suffered.

The world has changed indeed.

No emergency budget

(AF1, AF2, AF3, AF4, JO2, JO3, JO5, RO3, RO4, RO8, CF4) 

Philip Hammond, the new Chancellor, has stated clearly that there will be no post-referendum "emergency Budget".  Instead, as further evidence of his (and the new Prime Minister's) commitment to restoring calm, he has said that the government will be following the normal Autumn Statement and Spring Budget process.

Early indications are that this may see a move away from an austerity-based fiscal programme. Self- evidently, developments between now and the Autumn Statement will have a very strong influence on the direction that will be taken.

By all accounts, though, the new Chancellor will be more "inclusive" and less prone to "rabbit out of a hat" policies and initiatives.

We shall see…

Increase in the number of estates subject to IHT

(AF1, AF2, JO2, RO3)

House prices boost inheritance tax receipts (especially in London and the South East). Estates in London and the south east paid almost half of the country's inheritance tax bill in 2013/14 because of rising house prices, which means an increasing number of people are being hit by (and potentially interested in planning for) IHT- especially in that part of the country.

The data shows that London and the south east contributed 49 per cent of IHT collected during the year to April 2014 according to HM Revenue & Customs (HMRC).

Official forecasts also suggest the proportion of estates liable for IHT will reach 8.3 per cent of all estates in 2014/15.  This is the first time since 1976 that the proportion of estates subject to IHT has risen above 8%.

Properties, household savings and stocks, bonds and other financial securities make up the bulk of assets on which inheritance tax is levied.  Among all estates that paid inheritance tax in 2013/14, 36 per cent of assets were held in UK housing and 30 per cent in securities.

The £4.8bn that the government is set to raise from IHT this year is, however, a tiny fraction of forecast total tax receipts of £716.5bn, according to OBR forecasts.

The amount of IHT, as a proportion of the overall yield from all taxes, is very low. IHT does, however, generate a strong emotional response from those whose families may have to pay it. People see it as a form of "double taxation" to the extent that it represents tax on assets that are or were acquired by income that suffered income tax. Whenever there is a strong emotional resistance to a tax the motivation to "do something about it" will be higher.

Making individuals aware of what IHT can do to the family's net wealth and then explaining what can be done about it is a key part of the financial planner's role with those of their clients for whom IHT could be an issue. While, at 8%, the proportion of estates subject to IHT appears relatively low, the proportion of clients of advisers whose estates are likely to be subject to IHT will be greater. 

Those where residential property is the main driver of the liability may well be interested in protection policies in trust to meet the liability.  This is because effective planning to reduce the liability using residential property is in relatively short supply given the relative effectiveness of the gift with reservation and pre-owned assets tax provisions.  To the extent that the liability is generated by cash and investments, the options for planning increase.

Tried and tested strategies founded on trusts, such as loan schemes and discounted gift arrangements, can deliver IHT reduction with continuing access and control for the settlor.

Especially given that it seems likely that both of these scheme types will remain outside of the (soon to be extended) Disclosure of Tax Avoidance Scheme (DOTAS) provisions this makes them potentially very attractive to many clients of advisers who are concerned about IHT but cautious about outright gifting - or even simply gifting into trust.

A variation of trust case recognises the rights of same-sex partners

(AF1, RO3, JO2)

In what is believed to be the first case of its kind, the High Court has approved a variation of a 51-year old trust to allow same-sex spouses and civil partners to acquire the same inheritance rights over property that are afforded to opposite sex spouses of descendants of the settlor under the terms of the trust.

The terms of the trust in question, as originally drafted, were "much in the style of a 19th century dynastic family settlement" which did not include civil partners (naturally) or spouses under same-sex marriages. The Pembertons, who have lived in Trumpington Hall, Cambridgeshire, for three centuries, said they felt they had "a moral obligation" to future generations to modify the inheritance arrangements over their ancestral seat.

The variation, which ensures that future same-sex spouses and civil partners will have a life interest in Trumpington Hall following the death of their spouse, was approved on the basis that it would "be for the benefit of the family as a whole and therefore of benefit to each individual member" in the words of the Judge.

It is believed that the Pembertons are the first landed gentry to alter the definition of a 'spouse' in a pre-existing trust to ensure that it recognises same-sex marriages and civil partnerships.

The trust's lifespan was also increased for another 125 years, to 2141, and additional investment powers were conferred on the trustees.

The case highlights the progressive attitude of the Courts towards outdated family settlements that have not kept pace with changes to the law.

Personal portfolio bond consultation

(AF4, CF2, RO2, FA7)

At the 2016 Budget it was announced that the government would review the categories of permitted investments which could be held in a life assurance bond without it becoming taxable as a personal portfolio bond.

HMRC has now launched a consultation which invites views on the current property categories and further property types which may be held within the bond. 

Broadly, there are three types of investment vehicle which are being considered to be included within the permitted category list. These are:

  • real estate investment trusts (both UK and foreign equivalents);
  • overseas equivalents of UK approved investment trusts; and
  • UK authorised contractual schemes.

The government is keen to hear from interested parties, especially policyholders and their representatives, members and representatives of the life assurance and funds industries and life policy administrators for whom these changes may have a material impact.

The consultation closes on 3 October 2016 and draft legislation is expected in advance of Finance Bill 2017.

Draft disguised remuneration legislation published for consultation

(AF1, RO3)

HMRC has long since held the view that disguised remuneration schemes - such as those employed in the long-running Rangers EBT case - do not work and at Budget 2016 the government announced a further package of changes to tackle the continued use of disguised remuneration schemes which exploit perceived weaknesses in the disguised remuneration legislation introduced by Finance Act 2011.

A technical consultation launched last week, alongside draft legislation for inclusion in Finance Bill 2017, includes more detail on the proposals which also include a retrospective tax charge on loans that remain outstanding at 5 April 2019 where the loan has not been taxed and no settlement has been agreed with HMRC.

The schemes that are being targeted by the new measures typically involve loan transfers, where employees become indebted to a third party instead of their employer who made the loan.  The new rules put beyond any doubt that all such schemes, which result in a loan or other debt being owed by an employee to the third party, are within the scope of the disguised remuneration legislation at Part 7A ITEPA 2003 whatever the intervening steps.

This consultation - which will run from 10 August to 5 October 2016 - also includes details of proposals to tackle similar schemes used by the self-employed, and proposals to restrict the tax relief available to employers in connection with the use of these schemes.

Disguised remuneration was one of the first areas of tax avoidance tackled by the then coalition government. These schemes usually involve an individual's income being funnelled through a third party, with the money often then being paid to the individual as a 'loan' that is never repaid.

While the disguised remuneration legislation, introduced in 2011, was successful in stopping the promotion of schemes that existed at that time, since then a number of new schemes have evolved.  Furthermore, the 2011 legislation did not have retrospective effect - only loans made after 9 December 2010 were in scope. The new measures make it clear that all arrangements which result in the employee being indebted to the a party are 'treated in the same way as if the third party made the loan directly' and provide that, as at 5 April 2019, any outstanding loan or similar payment from an EBT will be treated as if it were a taxable bonus subject to PAYE and NIC as at that date.


June IA statistics

(AF4, CF2, RO2, FA7)

The Investment Association (IA) has just published its monthly statistics for June 2016, the month that incorporated the EU referendum. They do not make pretty reading for fund managers, as the £3.468bn net retail outflow in the month more than wiped out the overall net inflow since last November. The IA has now reported two successive quarters of net outflows, setting up 2016 to be potentially the worst year for over a decade - even 2008 saw net inflows of close to £5bn.

This month's highlights - or is that lowlights? - include:

  • Net retail redemptions for the month were £3.468bn, the third month of net outflows in 2016 and by far the largest.Grossretail sales were £2.8bn up on May's figure, at £15.985bn, but were swamped by £19.453bn of redemptions. Net institutional sales were also negative, but to the tune of only £9m. 
  • Total funds under management rose across the month of June to £948bn, helped by the demise of sterling and the bounce in Footsie stocks after the Brexit vote (also largely currency-induced).
  • Equity funds saw a net outflow of £2.8bn. The only equity fund sectors to see an inflow were Japanese Smaller Companies and US Smaller Companies. Predictably the biggest outflow, at £581m, was from UK All Companies.
  • The net retail outflow from the property sector was £1.448bn, 5.7% of the sector's end May value. That underlines why the gates were slammed shut. However, as is often the case with IA statistics, by the time they are published, the world has moved on: some funds are now reporting inflows because Armageddon has failed to arrive.
  • The most popular sector in terms of net retail sales was Global Bonds followed by Targeted Absolute Return. Fixed income funds filled three of the top five sectors for retail inflows. Predictably, property was the least popular sector.
  • The total value of tracker funds jumped by £14.448bn (13%), meaning that they now account for 12.0% of the industry total - in May the corresponding figure was 10.8%. 

The IA put a brave face on the June retail outflow, noting that it was only 0.37% of overall funds. Nevertheless, their own charts (see Chart A) show that the 6 month moving average of net retail sales has been on a near uninterrupted decline since peaking last July and is now in negative territory. 

The Bank Of England acts

(AF4, CF2, RO2, FA7)

On Wednesday 3 August, while the Bank of England's Monetary Policy Committee (MPC) was meeting, two reports were published which must have given the Committee food for thought:

  • The National Institute for Economic and Social Research issued its August economic review which forecast:
    • GDP would grow by 1.7% in 2016, slowing to just 1% in 2017. A decline of 0.2% is likely in the third quarter of this year, with a risk of a further deterioration. There is an "evens chance" of a technical recession (two successive quarters of declining GDP) in the next 18 months;
    • Inflation is set to increase significantly, peaking at just over 3% at the end of next year, although the MPC was expected to 'look through' this temporary rise; and
    • Now that government announcements have effectively scrapped Mr Osborne's zero deficit goal, borrowing is projected to increase by an extra £47bn over the period 2016/17 to 2020/21.
  • The IHS Markit/CIPS UK Services Purchasing Managers' Index recorded the fastest rate of fall for both output and new business since the dark days of March 2009 (when base rate was cut to 0.5%). Expectations were the weakest since February of that year. The Chief Economist at Markit said:
    • At these levels, the PMI data are collectively suggesting a 0.4% quarterly rate of decline of GDP (double the NIESR estimate);
    • It is too early to say if the PMI surveys will remain in such weak territory in coming months. However, the unprecedented month-on-month drop in the all-sector index has undoubtedly increased the chances of the UK sliding into at least a mild recession; and
    • Services providers are certainly bracing themselves for worse to come, with a record drop in business confidence about the year ahead leaving optimism at its lowest ebb since February 2009.

The Bank's own forecast, revealed in its August Inflation Report are:

  • The UK "was likely to see little growth in GDP during the second half of the year". Overall the calendar year 2016 GDP growth estimate stays at 2% because the first two quarters were stronger than the Bank expected in its last report.
  • For 2017 growth is projected to be 0.8%, whereas the May Inflation Report forecast (which did not consider Brexit) was 2.3%. According to Reuters this is the biggest cut ever seen from one Inflation Report to the next, even exceeding that of the financial crisis. For 2018 growth is estimated to be 1.8%, still 0.5% below the May projection.
  • Inflation is expected to pick up because of the weakness of sterling. For the final quarters of 2016, 2017 and 2018, the Bank's CPI projections are 1.2%, 2.0% and 2.4%, increases of between 0.2% and 0.3%.

Faced with such a change in outlook the Bank has announced four main measures on 4 August:

  1. A 0.25% cut in Bank Rate to 0.25%. The majority of the MPC expect to support a further cut during the course of the year to an "effective lower bound… … close to, but a little above, zero";
  2. A new Term Funding Scheme (TFS) of up to £100bn to reinforce the pass-through of the cut in Bank Rate to consumers and business. This is designed to encourage banks and building societies to expand lending by giving them "a cost effective source of funding" (as little as 0.25%) in the form of central bank reserves;
  3. The purchase of up to £10bn of UK non-financial investment grade corporate bonds from a pool the Bank reckons to be of about £150bn (ie non-gilt quantitative easing); and
  4. An expansion of the asset purchase scheme for UK government bonds (i.e. more 'normal' quantitative easing) of £60bn, taking the total stock of these asset purchases up from £375bn to £435bn. More QE had been widely expected.

The Bank's announcement has already forced gilt yields to new lows, driven down sterling 1.5% against the dollar and pushed the Footsie up 100 points. Whether still more monetary medicine will work is not certain. Nor is it clear how monetary policy will ever return to what was once thought of as normality.

Quantitative difficulties

(AF4, CF2, RO2, FA7)

The Bank of England has hit a problem as its starts the latest round of quantitative easing (QE): not enough sellers.

Two weeks ago the Bank of England announced that it would increase quantitative easing (QE) by £70bn - £60bn of gilt purchases and £10bn of corporate bond buying.   The Bank said in a Market Notice, issued on 4 August, that from 8 August  until the end of October it initially intended to buy £3.51bn of gilts each week, split equally between three different maturity bands : 3-7 years (on Mondays), over 15 years (Tuesdays) and 7-15 years (Wednesdays). The £3.51m a week figure was pitched to take account of both the announced extra QE (to be spread over six months) and the £12.1bn the Bank will be receiving on 7 September from the maturity of 4¼% Treasury 2016, bought under an earlier round of QE.

On 9 August some problems emerged. The Bank attempted to buy £1.17bn of conventional gilts with maturities exceeding 15 years, as planned, but was only able to find sellers of £1.12bn of stock, despite reportedly bidding above market price. The holders of the long-dated stock - typically pension funds and insurance companies - just did not want the problem of having cash to reinvest when they already had an asset that matched their liabilities.

It is worth putting the Bank's planned purchases into context. The Bank sets itself a limit of holding no more than 70% of the 'free float' (ie total issue minus government holdings) for any particular stock. According to the Bank, as at 27 July that meant there was £221.7bn of 15+ years stock available to purchase. For 3-7 years and 7-15 years the corresponding amounts were £100.0bn and £68.6bn. The fact that the Bank was planning equal amounts of purchases across all three maturities shows that it was already aware that fishing in the biggest pool would not be easy.

Another way of looking at the Bank's actions is to consider that the Treasury's planned conventional gilt issuance this year is £74.5bn (of which £27.3bn is long-dated). As the Bank will also have to reinvest £11.16bn from the maturity of 1¾% Treasury 2017 in January bought under QE, the planned new £60bn QE purchase will see the Bank effectively mopping up nearly £9bn more than all of 2016/17's conventional gilt issuance. Add to this the fact that the Bank plans to buy about 7% of the investment grade non-financial corporate bond market and it is little wonder the institutions are reluctant sellers.

There were questions raised two weeks ago about the effectiveness of further QE, but that was mainly about its ability to stimulate the economy. The Bank's problem with gilt purchases is a reminder that we are running out of monetary policy ammunition and that the government needs to act on the fiscal front. There nothing is due to happen until the Autumn Statement, probably at least three months away…

July property valuations

(AF4, CF2, RO2, FA7)

A "technical failure" slightly delayed the publication on Friday of IPD's monthly property index for July. The index had been widely awaited as an indication of just how much of an effect surveyors believed that the Brexit vote has had on commercial property values. For June, the IPD index showed an overall return of +0.2%, which was a combination of positive rental income and a small drop in capital values (about 0.2%). Earlier last week CBRE, the property consultants, issued their monthly index for July, showing an overall return for the month of -2.9%, with average capital values dropping by 3.3%.

The IPD monthly figures cover 3,341 properties worth £47bn, which MSCI IPD reckons represents 10.5% of the professionally managed real estate investment universe. It is therefore a good yardstick, although the less frequently issued IPD indices do have greater coverage.

According to IPD, the overall return for July was -2.4%, with capital values dropping by 2.8%. The largest declines (4.1%) were in Central London, a finding which echoes the CBRE data.

The IPD data emerged the day after Aviva said that the dealing freeze (sale and purchase) applied to its Property Trust "is … likely to be in place for a period of at least six to eight months from the date of suspension." Trustnet shows that as at 30 June the Aviva fund was 94.1% invested in property, with a cash holding of 5.4% and the balance in shares.

The IPD and CBRE figures both suggest that while property prices did drop after the Brexit vote, there was no precipitous decline. This raises interesting issues about the validity of the post-Brexit prices quoted by some funds. As ever with property - residential as well as commercial - the value is only known for certain when a buyer signs on the dotted line. A point to remember when looking at the indices is that they are based on valuers' assessments and are no measure of market liquidity, which is the driving factor for fund suspensions.


Fixed protection 2016 and individual protection 2016 applications

(AF3, RO4, CF4, JO5, FA2, RO8)

HMRC has recently published Newsletter 80 which confirms that protection applications can now be made.

Lifetime Allowance

The online service for lifetime allowance pension scheme members to apply to protect their pension savings from the lifetime allowance tax charge is now available.

The online service replaces the interim paper process for applying for fixed protection 2016 (FP2016) and individual protection 2016 (IP2016) and replaces the online form for applying for individual protection 2014 (IP2014).

From now on, members who want to apply for lifetime allowance protection will have to do so online.

Members who want to apply for protection can access the online service through the Protect your lifetime allowance guide.

To apply members will need an HM Revenue and Customs (HMRC) Online Services account. To create an account, or to login to an existing one, they should go online to HMRC services.

As this is an online service, members will no longer receive paper certificates with their lifetime allowance protection details. Instead they will be able to view their protection details online and they will be able to print their protection details as necessary.

Withdrawal of the interim application process

With the launch of the online service, applications for lifetime allowance protection made using the interim process will not be processed. Any applications made after the 31 July 2016 using the interim paper process will be returned and the individual will be directed to the online service to make their application.

Any interim applications that are in hand on 31 July 2016 (and if the application is successful) those individuals will be issued a permanent protection notification number. Members with permanent protection notification numbers will not need to reapply online and will be able to view details of their protection in their HMRC Online Services account. To create an account, or to log in to an existing one, they should go online to HMRC services.

Temporary reference numbers

If members have applied for IP2016 or FP2016 protection using the interim application process but fail to follow this up with an online application, providing these individuals have not lost their protection, their pension savings will continue to be protected and there will be no tax consequences.

However, from August 2016 onwards, only permanent reference numbers will be recognised by HMRC. In addition, when the pension scheme administrator look up service becomes available, it will only validate permanent reference numbers.

When an individual applies for a permanent protection notification number, details of their IP2016 or FP2016 (and any previous lifetime allowance protections) will show in their personal tax account. Going forward, the personal tax account will be populated with more details for members to access at any time so it will save time in the future if applications are made for permanent protection notification number sooner rather than later.

Pension scheme administrator look up service

In Pension Schemes Newsletter 78, reference was made to the lifetime allowance look up service for pension scheme administrators to check the protection status of their members. HMRC are continuing to develop this service and this will be available later in the year for pension scheme administrators to use.

In the meantime scheme administrators should continue to check the protection status of their members before making payments. Members who protected their pension savings before the April 2016 reduction in lifetime allowance will have a paper certificate confirming their protection status.

Most members applying for IP2014 will have received a paper certificate, however please note that some members who have applied more recently may have received a letter from HMRC instead confirming their protection details. If this is the case, the IP2014 protection details will be available to view online.

Members who applied for IP2016 or FP2016 using the interim process will have received a letter from HMRC confirming their protection details.

From 28 July 2016 everyone applying for IP2016, FP2016 or IP2014 will do so online and if their application is successful, will receive a permanent protection notification number and pension scheme administrator reference number at the end of their online application. Members will also be able to print details of their protection status.

HMRC attacking on in-specie contributions?

(AF3, RO4, CF4, JO5, FA2, RO8)

Over the last few weeks, there has been an on-going technical conversation carried out by members of AMPS (the Association of Member Directed Pension Schemes; the trade body for SIPP and SSAS administrators) over in-specie contributions. There appears to be growing evidence that HMRC is attacking SIPP/SSAS members over in-specie contributions that have been made and withholding tax relief-at-source claims by scheme administrators.

As you might expect this is starting to cause concern amongst scheme administrators.

We now understand that Pinsent Masons is intending to host a roundtable discussion to assess whether there is any appetite for a coordinated response to the HMRC apparent change in how they are willing to deal with in-specie contributions.

The topics that are to be covered are:

  • The issues - contribution agreements, creating a debt, settling a debt.
  • Possible arguments to persuade HMRC of a different stance. Legislation, tax manual and other methods that the contribution debt is created and settled.
  • AMPS steps so far with HMRC. AMPS is being represented at this roundtable
  • Gathering samples of contribution agreements. Which ones are being challenged and which are not?
  • Status of information notices. Ignore at your peril. How to respond.
  • Running a test case, including: merits of remedy either to Tax Tribunal on availability of the relief or a Judicial review on the decision to withhold relief; selection of test case; funding; and management of HMRC including information flow.
  • Appetite for an action group

In the case of SIPP or SSAS administrators, in the first instance, it may be worth liaising with AMPS over this assuming that you are members. If not, it may be worth your while considering joining as they are a very useful forum and lobby group.

In the case of advisers, you may want to make contact with the SIPP operators you use, before speaking to clients about the possibility of making any in-specie contributions.

Not already a member?

Members get access to a range of benefits, including quality CPD and discounts on CII exams.