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My PFS - Technical news - 01/05/18

Personal Finance Society news update from 12th April to 25th April 2018.

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Taxation and Trusts

Investment planning



2018 self-assessment forms and helpsheets published

(AF1, RO3)

HMRC has now released the 2018 versions of the self-assessment tax return, together with supplementary pages and helpsheets.

The personal tax return forms and helpsheets can be found here.

In addition, HMRC has also released the 2018 versions of income tax repayment claim forms:

  • R40 – Claim for repayment of the income tax deducted from savings and investments if you don’t complete a self-assessment tax return, and
  • R43 – Claim personal allowances and tax repayments if you’re not resident in the UK. 

As a reminder, the deadlines for submitting the 2017/18 self-assessment return are as follows: 

  • 31 October 2018 – paper return
  • 31 January 2019 - online return

In addition, should you wish to pay your self-assessment tax bill through your PAYE tax code – assuming, of course, you are eligible to do so - you have to submit your self-assessment return online by 30 December 2018.

HMRC trusts and estates newsletter: special edition April 2018

(AF1, RO3)

HMRC has published a special edition April 2018 of its Trusts and Estates Newsletter which focuses on improvements to HMRC’s inheritance tax process and timescales for completion of Form IHT400 – Inheritance Tax Account.

Based on feedback received, it would appear that many people would like to know earlier in the process whether or not HMRC is likely to carry out a compliance check or ask questions about the values in the estate. This newsletter has been specifically produced to show the new timeline and outline the changes to the process for issuing clearance on an estate.

In certain straightforward cases HMRC will not look at the IHT400 form in any more detail after it has sent you its initial calculations – notification will be given in writing if this is the case or if the account will be looked at in more detail. In the latter case HMRC will provide detail of when you can expect to hear from them – usually 12 weeks from when the first calculations were submitted. 

HMRC will no longer issue a clearance letter once the checks have been finalised. Instead, should you wish to apply for clearance, you should use form IHT30 ‘Application for a clearance certificate.’ You should, however, only do this once you are sure that there will be no further changes that will affect the tax position on the estate. Under section 239(2) of the Inheritance Tax Act 1984 it suggests that it is appropriate to wait for two years after the date of death – although in practice HMRC will consider clearance earlier but would expect you to apply after at least a year has passed since the date of death.

Even after probate has been granted, in many cases there will still be changes which need to be notified to HMRC. In these cases, it would be better to wait until you believe the values in the estate are final or once 18 months have passed since the date of death, whichever is the earlier. Before this, you only need to notify HMRC if:

  • the changes relate to the value of land, buildings or unlisted shares;
  • you want to claim relief when you have sold land or shares at a loss;
  • you have sold assets on which you were paying tax by instalments;
  • the total increase or decrease in the value of the estate is more than £50,000, before any exemptions or reliefs;
  • HMRC has told you that it is carrying out a compliance check on the estate;
  • the person who died made a gift with reservation of benefit or had the right to benefit from a trust when they died.

You should also ensure that you use the right forms when you tell HMRC about changes.


  • form IHT35 ‘claim for relief - loss on sale of shares’ - to claim relief on shares sold at a loss within 12 months of the date of death;
  • form IHT38 ‘claim for relief - loss on sale of land’ - to claim relief on land or buildings sold at a loss within four years of the date of death;
  • form C4 ‘Corrective Account’ or send a copy of Form C4(S) ‘Corrective inventory and account (Scotland)’ - to tell HMRC about any other amendments to the estate.

The Newsletter also provides a week-by-week timeline in relation to when you can expect to hear about your IHT400 form.

Finally, it is important to note that the IHT400 form must be submitted and any inheritance tax paid before probate can be granted so it is essential that HMRC receives all the information it needs to calculate the tax due.

The official rate of interest for 2018/2019

(AF1, RO3)

The official rate of interest that applies to employment-related loans, and the pre-owned assets tax charge, remains at its current level of 2.5% for the 2018/2019 tax year, according to updated guidance issued by HMRC.

The rate is normally fixed in advance for the whole tax year. However, it may be changed during the tax year if there are significant changes in interest rates.

Loans to employees
If an employer makes a cheap loan to an employee, or a relative of the employee, then the official rate is used to measure the benefit to the employee which is subject to tax as a benefit in kind. The benefit is the difference between the interest (if any) paid by the employee and interest at the official rate. An employer will pay Class 1A national insurance (NI) contributions on any taxable benefit.

There is no tax or NI charge if all loans for an individual do not exceed £10,000 at any time in the tax year.

Where the loan is provided under a salary sacrifice or flexible benefits arrangement, if the amount of the earnings foregone under the arrangement is greater than the amount of interest at the official rate, the amount to be treated as a benefit in kind is the amount foregone minus any actual interest paid.

Pre-owned assets tax charge
The official rate is also used in calculating the pre-owned assets tax (POAT) charge on assets other than land.

The POAT provisions, which introduced a charge to income tax on benefits received by the former owner of gifted property, apply to many trusts and settlements from 6 April 2005.

There is no tax charge if the benefit is less than £5,000 a year. The charge is calculated by applying the official rate of interest to the value of the asset.

So, for example, where the asset is a life assurance investment bond then, where the official interest rate is 2.5%, the value of the policy would have to be in excess of £200,000 for a charge to apply.


HMRC Guidance: Beneficial loan arrangements - HMRC official rates - dated 6 April 2018.

Business investment relief
(AF1, RO3)

Business Investment Relief (BIR) can be a useful tax relief for non-UK domiciled taxpayers because it allows these individuals to invest their offshore income and gains in the UK without being taxed on the remittance basis.

BIR was introduced in 2012. However, after a relatively low take-up of around £1.5billion invested in UK business, it was reformed from 6 April 2017 to encourage further engagement.

Key improvements from 6 April 2017:

  • Investments allowed in a new qualifying entity, a “hybrid company” - broadly a company, which qualifies under the established BIR rules, but that can be both a trading company and a company investing in trading companies, ie. a hybrid of the two;
  • More time for a company to start to trade, or start to hold investments in trading companies - deadline increased from two to five years;
  • A longer period of grace where a company becomes non-operational, during which time action must be taken to manage the risk of a tax charge - increased to two years from the date the investor became aware that the company was not operational; 
  • Acquisitions allowed of existing shares already in issue potentially qualifying for BIR - there is now no requirement for shares to have been newly issued as was previously the case.

HMRC stated its intention to continue reviewing other potential reforms proposed as in chapter 4 of the December 2016 consultation responses, with a view to further extending the application of BIR in the future.

A problematic issue that, so far, has only partially been resolved, is the 'extraction of value' rule. This rule is breached if a benefit, either in money or money’s worth, is received by or for the benefit of the investor. If a breach of the rule occurs, the recipient of the benefit can be treated as having made a taxable remittance of the whole investment.

Before 6 April 2017, this rule could be breached if an investor received benefits directly or indirectly from the target company (ie. the company where the investment was planned to be made) or any company associated with it, whether or not the benefit was connected to the investment. This meant that the investor could be penalised if they received a benefit from an associated company that they had not actually invested in.

For investments made on or after 6 April 2017, the extraction of value rule can now only be breached if the relevant person receives value in circumstances that are directly or indirectly attributable to their investment. This change removes some of the disincentive for using the scheme.

However, HMRC recently confirmed, in updated guidance, that investments made before 6 April 2017, where the extraction of value event occurs after 6 April 2017, will continue to be subject to the old rules.


  • HMRC updated guidance ‘Business Investment Relief’ dated 14 February 2018;
  • HM Treasury response to further consultation ‘Reforms to the taxation of non-domiciles’ dated 5 December 2016.

HMRC has issued updated guidance on the General Anti-Abuse Rule (GAAR)

(AF1, RO3)

Updated guidance on the GAAR, which originally came into effect July 2013, is now available.

The GAAR applies to abusive tax arrangements. It only comes into operation when the course of action taken by the taxpayer aims to achieve a favourable tax result that Parliament did not anticipate when it introduced the tax rules in question and, critically, where that course of action cannot reasonably be regarded as reasonable.

A ‘double reasonableness’ test requires HMRC to show that the arrangements ‘cannot reasonably be regarded as a reasonable course of action’. This recognises that there are some arrangements which some people would regard as a reasonable course of action while others would not.

The ‘double reasonableness’ test sets a high threshold by asking whether it would be reasonable to hold the view that the arrangement was a reasonable course of action - the arrangement is treated as abusive only if it would not be reasonable to hold such a view.

The GAAR guidance has been updated to reflect the fact that where there are a number of similar cases these may be pooled by HMRC and the GAAR Advisory Panel may be asked to consider one case in respect of that pool, or in certain circumstances a generic referral may be made by HMRC.

This change reflects that the pool has an existence separate from the lead arrangements, so that the pool may be created or increased even if the lead arrangements have taken corrective action.

Around the same time HMRC also published a fact sheet on counteraction notices. This sets out how tax adjustments are made when HMRC believes that arrangements, to which the GAAR applies, have been entered into.

HMRC will usually make the notified adjustments quite soon after giving the taxpayer a provisional counteraction notice, in the form of a tax assessment, an amended tax assessment, a determination or a decision relating to their liability to the type of tax involved.

HMRC has also published the GAAR Advisory Panel opinion of 28 February 2018, on employee rewards using contribution, employee loans and tripartite agreements.

The latest Panel opinion, which affects income tax and corporation tax, covers:

  • employee benefits provided via employer-financed retirement benefits schemes (EFRBS) 
  • deeds of contribution;
  • employee loan agreements; and
  • tripartite agreements (ie. between three parties).

The latest opinion concerned tax avoidance arrangements involving contributions to an EFRBS, and loans to shareholder directors that were unlikely to ever be repaid, where the taxpayer sought to avoid income tax and National Insurance charges on the funds made available to the shareholder directors. It centred around the case of a taxpayer, BCD Ltd, in which Mr J and Mr K are both shareholders and directors, and an EFRBS established for BCD Ltd in July 2013. (Full names redacted by the Panel).

The GAAR Advisory Panel’s opinion is:

  • entering into the tax arrangements isn’t a reasonable course of action in relation to the relevant tax provisions;
  • carrying out of the tax arrangements isn’t a reasonable course of action in relation to the relevant tax provisions.

The Panel summed up by saying “In this case a taxpayer and its advisers identified a potential shortcoming in wide - ranging “keep off the grass” anti-avoidance legislation. By adopting a series of carefully orchestrated and contrived steps the taxpayer and its advisers sought to frustrate the intent of Parliament and gain an unfair and unintended tax “win”.”

This is the GAAR Advisory Panel’s fifth opinion in respect of employee reward schemes – all finding that the tax arrangements were abusive.

In respect of this opinion HMRC may now issue pooling notices to apply the opinion to all users of this type of scheme and provisional counteraction notices notifying adjustments to be made to protect against the loss of tax.


  • HMRC guidance ‘Tax avoidance: general anti-abuse rule guidance - latest version’ dated 28 March 2018;
  • HMRC fact sheet ‘Compliance checks: provisional counteraction notices given under the general anti-abuse rule (GAAR) - CC/FS36’ dated 26 March 2018;
  • GAAR Advisory Panel opinion ‘employee rewards using contribution, employee loan and tripartite agreements’ dated 28 February 2018.

IR35 ruling goes against HMRC

(AF1, RO3)

A taxpayer has won an appeal against HMRC in the second IR35 ruling in two months.

IR 35 is aimed at identifying individuals who, in the view of HMRC, are avoiding paying tax and National Insurance by supplying their services to clients via a structure, such as their own personal service company, when the individual is acting like and is being treated like an employee of the end client.

This latest First-tier Tribunal decision, MDCM Ltd and the Commissioners for HMRC, did not go the way of HMRC. It follows the recent decision in the tax case of Christa Ackroyd Media Limited and the Commissioners for HMRC, in which the taxpayer lost her appeal against HMRC’s decision that she was caught by IR35.

The case

In 2016, HMRC determined that services provided by a construction contractor via his personal service company, MDMC Ltd, and a recruitment agency, called Solutions Recruitment Limited, to a business called Structure Tone Limited, should have been treated as a contract of employment between the contractor and Structure Tone Limited – ie. it was caught by IR35.

If a construction company needed workers with the aid of this contractor’s expertise, they would contact Structure Tone Limited who in turn would contact the contractor as director of MDMC Ltd. At this point Structure Tone Limited would not reveal the name of the construction company but would indicate a day rate, the location of the work and the likely length of the project. If MDMC Ltd accepted the instruction, it and Structure Tone Limited would enter into a contract and Structure Tone Limited would enter into a separate contract with the construction company at a higher day rate.

MDCM Ltd had the same standard contract with Solutions Recruitment Limited in respect of Structure Tone Limited, which used the recruitment company to provide night shift staff. In October 2012 Structure Tone Limited required a night shift manager for a construction project and contacted Solutions Recruitment Limited, who provided this contractor.

The contract between MDMC Ltd and Solutions Recruitment Limited provided that it could be terminated on the “relevant period of notice” being given by the company, in relation to each instruction. However, the Tribunal accepted the contractor’s evidence that there was in reality no notice period - the contract was terminated on 19 July 2013 with no notice.

The Tribunal found that whilst the contract with Solutions Recruitment Limited included a right to substitute another suitably qualified individual it was never exercised by MDCM Ltd. And therefore the hypothetical contract was one of personal services with no right of substitution and that there was a mutuality of obligation between Structure Tone Limited and the contractor.

On site, the contractor represented Structure Tone Limited as a contact point for other contractors. However, he did not participate in Structure Tone Limited staff meetings or functions.

Structure Tone Limited provided the contractor with personal protection equipment being a high visibility vest, gloves and hard hat. He had access to the Structure Tone Limited computer on site but was not provided with a mobile phone and used his own when working on the site.

Factors on HMRC’s side included there being no substitute allowed, no financial risk taken by the taxpayer, and all safety equipment being provided by Structure Tone Limited, effectively the end client in this case.

HMRC argued that control by Structure Tone Limited was the most important factor. However, the Tribunal found that whilst Structure Tone Limited directed what the contractor had to do during the shift that was no more than telling the contractor what needed to be done on site by the contractors which he supervised.

Further, there was no evidence that Structure Tone Limited controlled how the contractor would carry out his role in fulfilling the work programme for that shift beyond wearing their safety equipment to identify him as their representative. Also, Structure Tone Limited had had to ask for the contractor’s agreement before he moved over to another site, which indicated no power to direct where the contractor would work.

The contractor won his appeal against HMRC’s decision, with the First-tier Tribunal agreeing that the engagement was correctly categorised as self-employment. Factors cited by the Tribunal against the contractor being treated as employed by Structure Tone Limited, the end client, included:

  • No notice period;
  • No sick pay or holiday pay;
  • No employment benefits;
  • No expenses paid for travel or accommodation;
  • The contractor could refuse to work on another site; and
  • He was paid a fixed rate per day.

The Tribunal considered that he was not controlled by Structure Tone Limited, the end client, any more than any other contractor, nor was he integrated into that company.

This result has come as something of an unexpected blow for HMRC, who are thought to be keen to use successful implementation of IR35 as a basis to forge ahead with extending off-payroll working rules, where public authorities are responsible for deciding if IR35 applies to a person providing services through their own intermediary, to workers in the private sector.

HMRC has generally struggled to enforce IR35 over the years since its inception, and the result of this case further highlights the difficulties inherent in this legislation, both for taxpayers and Government.

Some of the factors that the First-tier Tribunal cited in this case as denoting self-employment would be common, and fairly normal, to most contractor/end client relationships – ie. the contractor not being given the benefit of pension contributions, sick pay, or holiday pay by the end client.

This case appears to show that one factor should not override all other factors, and the relationship as a whole should be considered. Nevertheless, HMRC may well appeal to the Upper Tribunal, particularly because factors, such as no substitute being allowed, have been key to their success in previous investigations and Tribunal cases. And mutuality of obligation, whilst it can exist in both employed and self-employed relationships, has often been cited as a significant pointer towards employment.

HMRC has also been criticised for its Check Employment Status for Tax tool (CEST). Shortly after it was issued in 2017, Contractor UK reported “We understand that approximately 15% of CEST users receive an inconclusive outcome on their employment status for tax, although anecdotally this figure might be much higher.” And, following this latest IR35 case, ContactorCalculator reported “Although the contractor was deemed outside IR35 in real life, CEST was unable to determine their status.”

With many more IR35 cases due to be decided over the coming months, it may yet transpire this latest result does no more than cause HMRC a small hiccup and has no significant impact on its appetite to finally triumph over this rather unsatisfactory piece of legislation.


  • First –tier Tribunal decisions ‘Christa Ackroyd Media Limited and the Commissioners for HMRC’ dated 10 February 2018;
  • First –tier Tribunal decisions MDCM Ltd and the Commissioners for HMRC’ dated 19 March 2018;
  • HMRC guidance ‘Off-payroll working through an intermediary (IR35)’ dated 20 September 2017;
  • ContractorCalculator article ‘HMRC holds no detailed evidence to prove CEST accuracy claims, reveals FOI requests’ dated 4 April 2018;
  • Contractor UK article ‘When CEST can't decide your IR35 status’ dated 17 November 2017.

Support for mortgage interest

(ER1, LP2, RO7)

An important change to Support for Mortgage Interest took effect from 6 April.

Two of the unwritten laws for Chancellors are:

  1. If you are going to do something that could be unpopular, whether raising taxes or cutting benefits, the best time to act is in the first Budget after the General Election.
  1. Putting distance between the announcement of bad news and when it takes effect limits the public criticism because there is no immediate pain. 

The current editor of the London Evening Standard, George Osborne, followed both principles in overhauling Support for Mortgage Interest (SMI):

  1. He announced the changes in his July 2015 Budget, his first performance after the May 2015 General Election.
  1. Of the two major changes he proposed, one took effect from the following April, while the other only came into force on 6 April 2018.

Strictly speaking, SMI as it now exists is no longer a social security benefit. Whereas before 2018/19 the DWP made mortgage interest payments (within limits – see below) for eligible claimants, now what it does is make loan payments (secured on the mortgaged property) to cover the interest. There is no benefit, as such, other than that the mortgage interest becomes a debt to the DWP rather than an outstanding amount to the mortgage lender. 

Most of the other key points of SMI have not changed:

  • Eligibility depends upon receipt of Income Support, Universal Credit, the income-related versions of Jobseekers’ Allowance and Employment Support Allowance or Pension Credit. Thus, for working age claimants, the usual upper capital limit of £16,000 applies.
  • There is generally a “waiting period” of 39 weeks from the date of claiming the eligibility benefit, other than for Pension Credit. Before April 2016 that period was 13 weeks.
  • The maximum amount of mortgage covered is generally £200,000 (£100,000 for most Pension Credit claimants). The £200,000 figure was set in January 2009 and had it moved in line with UK average house prices would now be around £285,000.
  • The DWP assumes a “standard interest rate” for all mortgages, rather than the rate the lender charges. The DWP rate is based on Bank of England data for average mortgage rates (variable and fixed). It is currently 2.61%, which means a borrower whose loan has reverted to lender’s standard variable rates (SVRs) will usually see their mortgage debt increasing as well as accumulating a debt to the DWP. 

The loan from the DWP carries a variable interest rate linked to government borrowing costs and is currently 1.5%.

The DWP loan must be repaid on home sale, transfer or on death. The DWP web guide to SMI is here and an insightful House of Commons briefing paper is available here.

These changes have prompted some press coverage because of the poor response from existing (pre-April 2018) claimants who need to sign up to the new loan arrangement. However, they should also give pause for thought to anyone with a mortgage. The message being conveyed by the government is that borrowers are meant to arrange their own protection.


House of Commons Library Briefing Paper Number 06618, published 5 April 2018 entitled ‘Support for mortgage interest (SMI) scheme’.


Venture capital trusts - sales reached £728m in 2017/18

(AF4, FA7, LP2, RO2)

The Association of Investment Companies (AIC) have just released revised VCT statistics for last tax year.

Table based on data provided by the AIC

2017/18 was an unusual year in the VCT market for two interrelated reasons:

  1. The publication in August of a consultation paper on ‘patient capital” which criticised the “capital preservation objective” of many EISs and VCTs; and
  1. The move to an Autumn Budget.

Together that pairing meant there was an unprecedented autumnal crop of VCT and EIS offerings, all aiming to raise capital before rules were tightened and, possibly, tax reliefs reduced.

In the event the reforms revealed in November were milder than many had feared. The new “risk to capital” provisions will hit EISs more than VCTs, although other measures targeting VCTs, eg the removal of secured loans, will add further risk.

Ironically, the VCT sector can, at least for now, celebrate Mr Hammond as their chief marketeer. The Association of Investment Companies (AIC) has just reported that VCT sales in 2017/18 hit £728m, 34% higher than in 2016/17. The figure represented the second highest level ever, the highest being in the final year of 40% tax relief back in 2005/06.

VCT fund-raising in 2018/19 is likely to look rather different. Some VCT providers deliberately raised enough capital before November to see them through for a couple of years. Indeed, high VCT fees applied to large piles of cash could be a scandal in the offing. Another disincentive to seeking fresh funds is the new requirement to invest 30% of capital raised in qualifying investments within a year of the end of the accounting period in which the funds were raised.

Retail prices index - March inflation numbers

(AF4, FA7, LP2, RO2)

The CPI for March showed an annual rate of 2.5%, 0.2% down from the previous month. Across the month prices rose by 0.1%, 0.3% lower than between February 2017 and March 2017. The market consensus had been for an unchanged 2.7% annual rate, meaning that this was the second consecutive month in which the forecasters had overestimated. The CPI/RPI gap narrowed by 0.1% to 0.8%, with the RPI annual rate falling from 3.6% to 3.3%. Over the month, the RPI was up 0.1%.

The ONS’s favoured CPIH index also fell by 0.2%, to 2.3%. The ONS notes the following significant factors across the month:

Clothing and footwear:  Overall this category supplied the largest downward contribution, with prices rising by 0.7% between February 2018 and March 2018 against an unusually large 2.0% a year ago. Women’s clothes were the main downward driver.

Alcoholic drinks and tobacco: This category also supplied a large downward effect, mainly because of Budget timings. The March 2017 Budget increases have now dropped out of the year-on-year comparison, leaving only the November 2017 increases.

Miscellaneous goods and services: This category was a third provider of downward pressure, mainly due to prices for personal care products which ONS says are “highly variable month to month”.

Furniture and household goods: There was a smaller downward effect which came from furniture and household goods, with prices dropping by 0.1% over the month against a 0.8% increase in 2017. ONS also notes that the February 2018 figure for this category was “unusually large”.

Recreational goods:  This category provided the only upward effect of note in March, with prices rising by 0.6% over the month, faster than in 2017. ONS notes that price movements for music events can have a distorting effect that is “heavily dependent on the acts that are playing”. Anybody looking at Rolling Stones tickets will know what the statisticians mean.

The disparity between the CPIH at 2.5% and CPI at 2.7% remains largely down to the “H”. Owner-occupiers housing costs (the “H”) are over a sixth of the CPIH and have seen a flat or falling level of annual inflation over the last year, coming down from 2% in March 2017 to 1.2% in March 2018.

In three of the twelve broad CPI categories, annual inflation increased, while six categories posted a decline. Alcoholic drinks and tobacco remains the highest category with a much reduced annual inflation rate of 3.5%.

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) fell 0.1% to 2.3%. Goods inflation fell a surprising 0.6% to 2.4%, while services inflation perked up 0.1% to 2.5%.

Producer price inflation (PPI) numbers moved in opposite directions. The input PPI inflation figure was 0.4% above February’s figure at 4.2%. Output price (aka factory gate price) inflation decreased, by 0.2% to 2.4%.

We commented last month that the improved inflation figures suggested that the impact of the Brexit-driven devaluation of the pound is now waning. This appears to be the case again this month, with the sharp drop in goods inflation a reminder that Sterling has regained some of its mojo.

These are the last inflation data before the next meeting of the Bank of England on 10 May, which will coincide with the publication of the Bank’s Quarterly Inflation Report. A base rate increase had been widely anticipated at the same time, although the market seems to have had second thoughts, given the fall in Sterling when the March inflation data emerged. That rate rise still looks likely, however, given that (mainly domestic) services inflation and earnings are rising and that the Bank tends to ignore currency effects (which impact more on goods) as outside its control.


Office for National Statistics statistical bulletin – Consumer price inflation, UK: March 2018

Government borrowing data show the Chancellor has ended 2017/18 ahead of the Spring Statement forecast

(AF4, FA7, LP2, RO2)

March’s government borrowing figures show borrowing for the last financial year was less than the Chancellor and the OBR estimated it would be six weeks ago.

The government borrowing figures for March have just been released, giving us a first full view of the UK’s finances for 2017/18. Rest assured they will be revised regularly for most of the next 12 months, but the latest snapshot is still important as a starting point.

The borrowing statistics for the month of March 2018 alone revealed a deficit of £1.3bn against £2.1bn in March 2017, making it the lowest net March borrowing figure since 2004. 

For 2017/18 overall Public Sector Net Borrowing (PSNB) amounted to £42.6bn, down £3.5bn on 2016/17, and the lowest yearly sum since 2006/07, before the financial crisis delivered a wrecking ball to government finances. The figure is £2.6bn lower than the OBR had forecast in its Spring 2018 Economic and Financial Outlook, published alongside the Spring Statement. That number always looked a little pessimistic, given the January borrowing numbers.  The OBR’s projection for 2018/19 of £37.1bn, although it is too early to say whether this is similarly pessimistic, given the uncertainties about global trade and the UK economy.

Total government debt is now £1,798bn - say £1.8trn in round numbers - an increase of £71.2bn over the past 12 months.  Income tax and capital gains receipts rose by 6.1% in March compared with the same month in 2017, while the corresponding increase in corporation tax revenues was 2.2%. Debt interest payments declined by 75% in March, a quirk of January’s RPI data and its impact on index-linked gilts. However, debt interest payments were up over 12% in the full financial year.

These figures are a small piece of good news for the Chancellor. However, he is under pressure from many sides to ease the purse strings and this ‘extra’ £3.5bn will not go far.


Office for National Statistics statistical bulletin – Public sector finances, UK: March 2018


Overseas transfers and the advice requirement

(AF3, FA2, JO5, RO4, RO8)

The initial call for evidence on the advice requirement and overseas transfers ran from September to December 2016.

Evidence was sought on how the advice requirement was working for non-UK residents with safeguarded benefits and whether an easement was possible for these members.

Since the call for evidence closed there have been some further developments, namely the new overseas transfer tax charge and the updated FCA handbook rules on conversion or transfer of safeguarded benefits.


In summary, the vast majority of respondents welcomed the protection afforded to members by the advice requirement and feedback suggested that it would be extremely difficult to ensure that the quality of overseas advisers was suitable or that members would have access to financial redress overseas in the same way that they do in the UK from the Financial Ombudsman Service and Financial Services Compensation Scheme.

Although it as recognised that there is shortage of financial advisers specialising in pension transfers which can delay the process for some members, it is to be expected, and widely accepted, that advice on transfers across borders is inherently more complex regardless of the type of pension benefit being advised. They expect more transfer specialists to continue to enter the market, and they will continue to monitor the numbers of suitably qualified advisers and the capacity of the market to cope with demand for overseas transfers. Evidence is also emerging that some UK firms are already making connections with overseas advisers in order to provide more coherent and rounded advice on overseas transfers.

Following consideration of these points and the responses to the call for evidence, the DWP are largely satisfied that the advice requirement is working as intended for overseas transfers by offering an effective level of protection for members. They do intend to retain the advice requirement for overseas transfers at the present time since the gains provided in consumer protection outweigh the issues faced by some members with delays in the overseas transfer advice process.


Overseas – DWP updated pensions guidance March 2018

Financial assistance scheme increased cap for long service – regulations laid

(AF3, FA2, JO5, RO4, RO8)

The Financial Assistance Scheme (Increased Cap for Long Service) Regulations 2018/207 have now been laid.

The Regulations insert a new provision into the original regulations as laid in 2005 which sets out the definition of the compensation cap. The new regulations provides for a revised FAS cap dependent on a person’s age and length of pensionable service when the person first becomes entitled to an annual payment or an ill health payment under the Scheme.


Legislation website - The Financial Assistance Scheme (Increased Cap for Long Service) Regulations 2018

Burgess and others v BIC UK – retrospective changes to increases in payment

(AF3, FA2, JO5, RO4, RO8) 

On 17th April 2018 the High Court published details of the ruling made in the case of Burgess and others v BIC UK. The case was brought to determine the following in respect of the BIC UK scheme.

  • Were the Pre-97 Increases properly paid?
  • If the Pre-97 Increases were properly paid, can they now be stopped?
  • If the Pre-97 Increases were not properly paid, can the Trustees now recover from the pensioners the payments made since 1992?

BIC UK has been challenging increases that were implemented when the scheme was in surplus, because of this the increases were stopped on 3 March 2013. The trustees of the scheme, the claimants now want to ascertain the above. Although the ruling agrees that the amounts were properly paid and could not be stopped the Judge went on to consider the third point just in case they were incorrect in the first two parts. 

This is the part that is of more interest, it looks to see if any overpayment by the scheme can be recouped from the members to which they were paid. In addition the issues of time since the payments were made was considered.

The outcome of this was that the scheme could request repayment of the overpaid benefits, the member could refer this to the Ombudsman but because they are not a court then they cannot force the repayment and should member dispute the Ombudsman’s determination it would need to go before the county court. In addition, the Judge determined that there was no time limit for this request for repayment.

Summary of principal conclusions

  1. the Pre-97 Increases were not validly granted by virtue of either rule 32 or rule 36 of the Fourth Edition of the Rules;
  2. the Pre-97 Increases were validly granted due to each of clause 4 and 9 of the 1993 Deed and rules 3(c)(iii) and 9(a) of the 1993 Rules since those provisions can take effect from 6 August 1990 without impermissibly re-writing history;
  3. the decision to pay the Pre-97 Increases was irrevocable;
  4. if the Pre-97 Increases were not validly granted, the Trustees cannot assert that BIC UK is estopped from so asserting;
  5. if the Trustees were to exercise the equitable right of recoupment to recover overpayments, then a determination by the Pensions Ombudsman on a reference by a member would not amount to an order of a competent court within section 91(6) of the Pensions Act 1995, but an order of the County Court enforcing such a determination would;
  6. equitable recoupment is not subject to a six-year limitation period under section 5 of the Limitation Act 1980; and
  7. the Court is not in a position to determine on a group basis whether recovery of overpayments by the Trustees would be barred by laches or estoppel, since those are matters which require determination as between the Trustees and individual members of the Scheme in their own particular circumstances.


BIC case – Bailli website (High Court (Chancery Division) decisions

Work and pensions committee report on pensions freedoms

(AF3, FA2, JO5, RO4, RO8)

In the final report of its inquiry into pension freedom and choice, the Work and Pensions Committee calls for a simple package of measures to create better informed, more engaged pensions savers – and offer a default decumulation pathway to protect the less engaged. 

The committee calls for changes in two areas protecting savers and empowering savers to choose.

Protecting savers

The consensus is that there needs to be default options in retirement just as there are in the accumulation phase, introduced by auto enrolment. To this end the committee recommends that the Government take up the FCA recommendation of default decumulation pathways making it compulsory for any provider offering drawdown to offer a default solution to meet the requirements of their core customer group. In addition they propose a charge cap of 0.75% is applied to these products. They go on to recommend that NEST should be allowed to provide such options.

Empowering savers

The committee feel that the current wake up pack and ongoing information doesn’t do enough to get consumers engaged. It welcomes the idea of a mid-life MOT, where providers contact consumers around the age of 50 and feel this is a good way to start engagement.

The do go further and say “We recommend that the FCA and The Pensions Regulator (TPR) require all pension providers to issue one-page pensions passports as part of their pre-retirement communications with members. The FCA and TPR should work together to produce a template best practice passport by June 2018.” This is because they believe the current wake up packs are not sufficient.

They go on to recommend that the Government introduces a single pensions dashboard hosted by the forthcoming new single financial guidance body, funded by the industry levy and in place by April 2019. They do understand this may be a challenge for some legacy schemes and proposed that at least 80% of DB scheme are available by launch.

The last recommendation is for the FCA to conduct a review between face-to-face services and automated services.

These are clearly all good recommendations but time will tell if they will make any difference to consumer’s attitudes to pensions and the way they access them. A default retirement pathway in drawdown appears to me to be something that will be very difficult to get right with such freedoms of options.


DWP report – Parliament reporting of DWP report into Pensions Freedoms April 2018

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