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My PFS - Technical news - 20/06/17

Personal Finance Society news update from 7th to 20th June 2017.

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Taxation and Trusts

Investment planning

Retirement planning

TAXATION AND TRUSTS

Post-election thoughts for financial planners

(AF1, AF2, AF3, FA2, JO3, JO5, RO3, RO4, RO8)

The current uncertainty over future taxation policy reminds us of the importance of informed, balanced financial advice. Regardless of the complexion of the next Government:

  • Taxation (broadly at the levels we are currently experiencing - or higher) will remain high on the political and economic agenda.
  • Clients will continue to be interested in legitimately reducing it.
  • Aggressive tax avoidance will continue to be attacked.
  • It will remain possible to save and invest tax effectively in ways that are permitted by the legislation. No party is suggesting that there is any fundamental objection to this basic principle.
  • Choices will exist and they are likely to continue to be relatively complex.
  • Advice will remain essential and the "alpha" that can be secured from well-informed advice will continue to be valued and in high demand.

No summer budget?

(AF1, AF2, AF3, FA2, JO3, JO5, RO3, RO4, RO8)

A report in the Financial Times for 14 June stated that the Chancellor and his replacement Treasury Chief Secretary (Liz Truss) are not planning a Summer Budget and, instead, are working on "a new strategy" to be revealed in the Autumn Budget (assuming the government lasts that long).

If the report is correct, it raises another question mark over the raft of Finance (No. 2) Bill 2017 measures which failed to reach the Finance Act 2017. The explanatory Budget timetable note issued by the Treasury last November stated:

'From winter 2017, Finance Bills will be introduced following the Budget. The aim will be to reach Royal Assent in the spring, before the start of the following tax year.'

In theory that could still mean the culled legislation remerges in, say, a March 2018 Finance Act, with some measures (eg Money Purchase Annual Allowance cut) to take effect from their originally planned 6 April 2017 start date. In practice, such timing starts to feel like backdated legislation.

We may gain more of an idea of when the Finance Bill measures are to be revived from the Queen's Speech.

The let property campaign: guide to making a disclosure

(AF2, JO3)

The Let Property Campaign is to enable landlords who owe tax through letting out residential property, in the UK or abroad, to get up to date with their tax affairs in a simple and straightforward way.

It includes:

  • those that have multiple properties
  • landlords with single rentals
  • specialist landlords with student or workforce rentals
  • holiday lettings
  • renting out a room in a main home for more than the Rent a Room Scheme threshold
  • those who live abroad, or intend to live abroad for more than 6 months, and rent out a property in the UK as they may still be liable to UK taxes

Those who are unsure whether they need to disclose unpaid taxes under this campaign can use the Let Property questionnaire to help them decide.

Full details of the campaign and how to make a disclosure can be found here.

This is an ideal opportunity for advisers to contact clients to ensure their tax affairs are up-to-date and an early disclosure will result in lower penalties and interest being payable. Clients should also be made aware that if HMRC accepts a disclosure they do not necessarily have to make an upfront payment as HMRC accepts various payment methods which will enable individuals to spread payments.

INVESTMENT PLANNING

Collective funds - April 2017 IA statistics

(AF4, FA7, LP2, RO2)

The Investment Association (IA) statistics for April show a second successive month of record net retail sales at £4.9bn, helped by the traditional end/start of tax year pick up in ISA sales, combined with the higher ISA contribution limit.

The Investment Association has just published its monthly statistics for April 2017. Like the previous two months' numbers, the April net sales show a pick-up of interest among retail investors after a disappointing 2016. Net retail sales have now been positive for the past nine months, following the Brexit-inspired outflows of May to July 2016. This month's highlights include:

  • Net retail sales for the month were £4,934m, up £903m on (a revised) March and a second new record inflow.Grossretail sales were down £3,066m on March's (revised) figure, at £19,398m, a reminder that net sales numbers can be more influenced by the level of redemptions than fresh inflows. In April redemptions also fell 21.5% - from £18,433m to £14,464m, probably a reflection of year-end CGT planning having a big impact on March's number.
  • Net institutional sales for April fell from £3,568m to £2,505m. A year ago, there was an inflow of just £73m.
  • The net inflows more than countered a small fall in overall market values, lifting total funds under management (FUM) to £1,092.3bn, the fifth consecutive month a new record has been set. Across the year, the FUM increase amounted to 17.4%, mainly due to market movements.
  • Equity was the best-selling asset class, with net retail sales of £2,025m, the second highest level ever recorded (again). Mixed Asset came in second, with net sales of £1,032m. Money Market completed the top three with net retail sales of £832m. Property remained the least popular asset class, but still drew in a net £69m.
  • The most popular sector in terms of monthly net retail sales (£678.2m) was the rag bag that is Specialist. If that seems strange, then all you need do is remember that the CF Woodford Focus Income, which launched in April, falls into the Specialist sector.

Targeted Absolute Return took second place (£606.9m), Global was third, £ Strategic Bond was fourth and Short Term Money Market fifth.

  • ISA net flows were £1,067m, the second month of net inflows. This was £654m up on March's figure and helped boost the overall net retail inflow number. A year ago, April produced £586m net inflow to ISAs
  • The total value of tracker funds rose 1.1% to £150.5bn, meaning that they now account for 13.8% of the industry total. The corresponding figure for April 2016 was 11.3%.  Tracker fund net retail sales amounted to £933m - 18.9% of all net retail sales.

It is worth pausing to remember that, as these figures relate to April, they not only cover the tax year end, but also the period before and shortly after the snap election announcement on the 18th of that month. More recent figures from EPFR Global suggest that the last six weeks have seen steady outflows from UK equity funds as the outcome of the election has become less clear cut. There may be the first hint of that in the popularity of Money Market funds in the IA April statistics.

May inflation numbers

(AF4, FA7, LP2, RO2)

The CPI for May showed prices rising by 0.4% over the month, whereas prices rose by 0.2% between April 2016 and May 2016. The consensus had been for a 2.7% annual rate. The CPI/RPI gap remained at 0.8%, with the RPI annual rate now standing at 3.7%. The next  earnings growth figures are likely to show little change from March's 2.1% (excluding bonuses), underlining a growing squeeze on incomes.

The Office for National Statistics (ONS) newly-favoured CPIH index was up 0.1% to 2.7% for the year. The ONS put the rise down to a variety of factors, with one main driver (and five much less significant ones) in the upward direction:

Upward

Recreation and culture:This sector saw prices rise by 0.9% between April and May 2017 compared with a fall of 0.4% a year ago. The major contribution came from games, toys and hobbies, particularly computer games. Price movements for these games are dependent on the composition of bestseller charts and can fluctuate from month to month. For example, in April recreation and culture was the maindownwarddriver because of falling games costs. Other upward pressures came from increased prices for data processing equipment and package holidays.

Downward

Transport:This category was again influenced by the timing of Easter. Last month the annual figure effectively covered two sets of Easter price increases; the 2016 Easter jump has now dropped out of the 12 month figures. Falling fuel prices also helped as petrol and diesel prices each fell this year, by 1.0p and 1.6p per litre respectively. A year ago, their prices rose by 2.8p and 3.0p respectively. Fuel prices have now fallen for three consecutive months and with Brent Crude again below $50 a barrel, more assistance may be on the way (albeit somewhat countered by the latest politically inspired hit to sterling).

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) was up 0.2% at an annual 2.6%. All twelve Index components were in positive annual territory, with the lowest (communication) now 1.4% and the highest (alcoholic beverages and tobacco) up 4.9%. Goods inflation rose by 0.5% to 2.9%, while services inflation declined by 0.2% to 2.8%.

Producer price inflation (PPI) eased back sharply, suggesting that the worst of the Brexit currency impact may be over for now. The input PPI figure fell from 17.9% in the year to April 2017 to 11.6% in the year to May 2017. At the start of the year it was 19.9%. Output price (aka factory gate price) inflation was unchanged for the third month at 3.6%.

June interest rate decision

(AF4, FA7, LP2, RO2)

An increase in interest rates could be nearer than anyone thought.

The 15 June meeting of the Monetary Policy Committee (MPC) of the Bank of England was expected to be a non-event. A Reuters poll of economists revealed that not one expected a move in base rates from the 0.25% set in the wake of the Brexit vote last year. They were all proved right, but…

Of the eight MPC members, three external members voted for a rate increase. It was the first time since 2011 that there had been three votes for a rate rise - and that was when the MPC had nine members. The 3-5 vote was a shock to the market and gave a brief boost to sterling.

The Bank's statement noted that 'CPI inflation has been pushed above the 2% target by the impact of last year's sterling depreciation.  It reached 2.9% in May, above the MPC's expectation.  Inflation could rise above 3% by the autumn, and is likely to remain above the target for an extended period as sterling's depreciation continues to feed through into the prices of consumer goods and services.  The 2½% fall in the exchange rate since the May Inflation Report, if sustained, will add to that imported inflationary impetus.' That concern about over-target inflation seems to have been the reason why the trio voted for a 0.25% rate increase, despite recent evidence that growth is slowing.

One of those voting for the increase, Kristin Forbes, was attending her last MPC meeting. The election hiatus means that her replacement has not yet been chosen. Neither has a replacement been named for Charlotte Hogg, the deputy governor who resigned in the wake of a grilling from the Treasury Select Committee. In theory, Mr Hammond could name two new members in time for 3 August's MPC meeting, changing the voting mix significantly. Even so, yesterday's general assumption among commentators that rates would not rise until 2019 is now probably consigned to history.  

The US Federal Reserve increased its main short-term rate by another 0.25% on 14 June, taking it to a 1.00%-1.25% range. The Fed also set out the first steps to unwinding its bloated $4.2trn balance sheet, the result of its quantitative easing programme. The Bank of England still looks a long way behind...

PENSIONS

TPR carrying out AE spot checks on Birmingham

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) is to begin carrying out spot checks in Birmingham to ensure employers are complying with their automatic enrolment duties.

Inspection teams will visit dozens of businesses in and around the city to check that qualifying staff are being given the workplace pensions they are entitled to.

The move is part of a nationwide enforcement campaign which began in London in April to ensure employers are meeting their automatic enrolment duties correctly.

Birmingham is to become the third area to be the focus of the short-notice inspections. TPR carried out checks in Greater Manchester earlier this month.

The checks will also help TPR understand whether employers are facing any unnecessary challenges that we can help them with, such as by improving our systems.

But they will also highlight employers who have not taken the required steps to become or remain compliant, paving the way for enforcement action.

DWP reshuffle

(AF3, FA2, JO5, RO4, RO8)

Following the snap election results and the usual reshuffle, the new team at the Department for Work and Pensions is now:

  • Secretary of State - Rt Hon David Gauke MP
  • Minister of State for Employment - Damian Hinds MP
  • Minister of State for Disabled People, Health and Work - Penny Mordaunt MP
  • Parliamentary Under Secretary of State for Pensions and Financial Inclusion (Pensions Minister) - Guy Opperman MP
  • Parliamentary Under Secretary of State for Family Support, Housing and Child Maintenance - Caroline Dinenage MP
  • Parliamentary Under Secretary of State (Lords) - Baroness Buscombe

The pension minister's responsibilities include:

  • pensioner benefits, including new State Pension, Winter Fuel Payments and Pension Credit
  • State Pension age review
  • financial inclusion and guidance, including the Single Financial Guidance Body, Credit Unions and Post Office Card Accounts
  • private and occupational pensions, including regulatory powers, Automatic Enrolment and the National Employment Savings Trust (NEST)
  • oversight of arms-length bodies, including the Pensions Regulator, Pension Protection Fund, Financial Assistance Scheme and Pensions Ombudsman

HMRC pension scheme newsletter 87

(AF3, FA2, JO5, RO4, RO8)

HMRC has recently published Newsletter 87 which covers:

  • Pension Advice Allowance
  • Relief at Source
  • Scottish Rate of Income Tax
  • Pension Scheme return (SA970)
  • Changes to the ROPS listing

Of notable interest:

Pension Advice Allowance

HMRC has received queries from pension scheme administrators asking if their members can request the pension advice allowance from their scheme by email. The Registered Pension Schemes (Authorised Payments) (Amendment) Regulations 2017 say that the request must be made in writing by the member. HMRC confirmed that the member can make this request by email, however it's down to the pension scheme administrator to decide if they will accept requests by email.

The pension scheme return and the SA970 tax return for trustees of registered pension schemes

HMRC has received a number of queries from pension scheme administrators confusing the pension scheme return (PSR) with the SA970 tax return for trustees of registered pension schemes.

These are 2 different information returns; the pension scheme return and the SA970 tax return for trustees of registered pension schemes. As pension scheme administrator/pension scheme trustee, may have to complete both the PSR and the SA970 tax return for trustees of registered pension schemes.

Changes to the scheduled publication of the Recognised Overseas Pension schemes (ROPS) notification list

A reminder that there are planned changes to the scheduled publication of the ROPS notification list as follows:

  • 2 June 2017 - suspension of the ROPS notifications list
  • 5 June 2017 - new list to be published
  • 15 June 2017 - routine publication of the ROPS

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