Personal Finance Society news update from 15 July 2015 - 28 July
2015 on taxation, retirement planning, and investments.
Taxation and Trusts
Taxation and trusts
HMRC review of the use of deeds of variation
(AF1, RO3, JO2)
In his last pre-election Budget on 18 March 2015 the Chancellor
announced a Government review of what he described as "attempts to
avoid inheritance tax through the use of deeds of variation". To
this end HMRC launched consultation on 16 July on the use of Deeds of
Variation (DoV) for tax purposes to ensure that they are not being
HMRC is asking eight fairly straightforward questions and has
said that anybody can respond and all responses will be considered.
HMRC admits that it has little information about the uses of DoV,
as the executors only need to notify HMRC where a DoV results in an
adjustment of inheritance tax due. Although the consultation is
referred to as a call for "evidence", no evidence as such is being
asked for, merely a survey is being carried out.
HMRC states that the questionnaire has been designed with the
aim of understanding what role tax advantages play when a decision
is made to vary a will by a DoV.
One of the questions asks: What is the main reason (or reasons)
for using a DoV? The choice of answers include the following:
- To update a will to reflect changes in family
- To reduce/increase a tax liability (IHT or CGT)
- To increase the amount of a charitable legacy
- To clarify a poorly drafted will
which certainly does not cover all the possible answers to the
said question. And what if more people taking part tick the answer
about tax liabilities, will this provide actual "evidence" that DoV
are used primarily for tax reasons? And if only a minority ticks
that question, will this "evidence" be accepted by HMRC and DoV be
left alone? Or has the government already decided what is it going
to do anyway?
It also asks whether DoV are ever used to support any contrived
or artificial arrangements designed purely to reduce a tax
liability. One wonders who might answer this in the positive.
The deadline for responses is 7 October after which the
"evidence" will be analysed and the government will consider the
Whatever the reason and whether legitimate use of a tool which
is specifically provided for in legislation can be construed as tax
avoidance or not, the fact is that there is a distinct possibility
that the use of these deeds may be curtailed. Of course, similar
threats have been made before and nothing has materialised but who
knows what the conclusions will be this time round, given the
current attitude towards any form of tax planning.
Most advisers will be familiar with the concept of a deed of
variation, i.e. a device which, it is often said, allows you to
rewrite a will (or intestacy) after someone has died, perhaps to
improve the inheritance tax position after death or to "skip a
As mentioned above, deeds of variation have been picked for
review as part of the government's drive to counter tax avoidance.
It is certainly questionable whether changing a will provision by
itself can be considered to be tax avoidance. After all, if the
deceased had included equivalent provisions in the will (except, of
course, those relating to the severance of a joint tenancy which
cannot be via a will) - or had left a valid will, in the case of
intestacy - such provisions would never be considered to amount to
tax avoidance. Let us hope the review will come to sensible
conclusions. Nevertheless, those contemplating using this device
should bear the possible changes in mind and may want to consider
taking action sooner rather than relying on the two-year limit
And, of course, the ongoing review should act as a trigger to
review, and update if necessary, your own will - and to recommend
the same to your clients.
The personal savings allowance - consultation launched
(AF1, AF4, RO2, RO3, CF2, FA7)
In the March 2015 Budget it was announced that the government
would introduce a personal savings allowance (PSA) of £1,000 for
basic rate taxpayers (and £500 for higher rate taxpayers) on the
interest earned on savings from 6 April 2016. The PSA will not
apply to additional rate taxpayers.
In addition, from April 2016, banks and building societies will
stop automatically deducting 20% income tax on interest earned on
The government said that by introducing a personal savings
allowance it believed that 95% of people would not have to pay tax
on the first £1,000 (£500 for higher rate taxpayers) of interest
they earn on their savings. Savings income for these purposes
includes interest income, income from certain purchased life
annuities, profits from deeply discounted securities, profits under
the accrued income scheme and gains from certain life assurance
In view of these proposed changes, HMRC has now launched an open
consultation inviting comments on options for
changes to current legislation. The aim of the consultation is to
establish which options will best balance: making it as easy as
possible for recipients to pay the right amount of tax; reduce
risks to the Exchequer if the right amount of tax is not paid;
administrative burdens and costs for payers of interest and other
amounts; and costs to HMRC of operating and policing the tax
The consultation closes on 18 September 2015 and will be of
particular interest to financial institutions and other businesses
that pay interest or other savings income. However, HMRC also
welcomes comments on how recipients of savings income may be
Undoubtedly, the introduction of a PSA is a welcome change and
it will be interesting to see the outcome of this consultation in
New consultations on offshore tax evasion
In the Summer Budget the Chancellor stated that he would be
looking to raise a further £7bn from further attacks on aggressive
avoidance and evasion of tax. Up to £800m would be made available
to HMRC to pursue this target.
In relation to this HM Revenue & Customs is now consulting
on a raft of new measures to clamp down on offshore tax
The tax office has published four consultations, which will run to 8
October, on expanding the Government's evasion strategy.
£26.6bn secured by tax avoidance clampdown
HMRC's annual accounts for 2014/15 show that £26.6 billion
was secured in revenue from tax avoidance and tax evasion. This is
nearly £3 billion more than in 2012/13 when it got back around £24
HMRC said that amongst the most significant tools that it has to
tackle avoidance by individuals and companies is through the use of
the 'Accelerated Payments' legislation introduced by Finance Act
2014 and the ability to issue 'Follower Notices.'
HMRC generated £768 million through accelerated payment notices
over the period after it issued around 10,000 of the notices to
investors in disputed tax avoidance schemes. It expects to issue
another 64,000 notices on individuals and businesses in schemes
that are currently under dispute with the authorities. Essentially,
under this legislation anyone who has entered into a tax avoidance
scheme and is under investigation is required to pay the disputed
tax upfront within 90 days.
In addition, in 2014/15 HMRC issued 379 'follower notices'
collecting £170m as a result. 'Follower notices' are aimed at
marketed avoidance schemes where HMRC has succeeded in the Courts
against one scheme user. Therefore, on issue of a 'follower notice'
a tax avoider is urged to pay the disputed tax they owe. Someone
who receives a 'follower notice' and does not settle their dispute
may be liable to a penalty of up to 50% of the tax and/or National
Insurance contributions in dispute.
Over recent years, the government has been extremely committed
to clamping down in this area and, as a result, has introduced
measures or tightened up existing measures to reduce evasion and
aggressive tax avoidance. And, it seems, this area of focus
Personal allowance to be linked to the national minimum
(AF1, AF2, RO3, JO3)
In the Summer Budget the government pledged that it would increase the
personal allowance to £12,500 from 2020.
It was also announced that when the personal
allowance reaches £12,500 it will be increased automatically 'in
line with the equivalent of 30 hours at the national minimum wage
rate that individuals over 21 are entitled to'.
This announcement effectively changes the basis
of indexation for the income tax personal allowance from the
Consumer Prices Index (CPI) to linking to an annual equivalent of
an individual working 30 hours per week at the national minimum
wage (NMW) adult rate when the personal allowance reaches £12,500.
By introducing this measure the government is essentially promising that no one working
for 30 hours a week on the NMW will pay tax.
This change reflects the government's objective
to support and rewards individuals in work. It also provides
additional certainty about the level of personal allowances.
Class 3A NICs DWP update
(AF3, CF4, JO5, FA2, RO8, RO4)
The DWP has recently issued an update to individuals who have
registered their interest in topping up their State Pension via
Class 3A NICs.
The DWP update, issued by e-mail, explains the next steps for
individuals who have expressed an interest.
In addition, the e-mail includes the following links:
- A YouTube video of Alan Dick, Director of the Institute of
Financial Planning explaining how State Pension top up works.
- A link to the DWP's on-line calculator to work out the costs of
Class 3A contributions. It is worth noting that although the
calculator asks the question whether the calculation is being done
for a male or a female, it doesn't make any difference to the
quoted cost, but it is there to filter out the difference in SPA
between males and females. At the end of this process, it includes
details of how to register interest in receiving updates by e-mail.
This is done by sending an e-mail to
In addition to the above the e-mail includes brief summary of
- State Pension top up will be available for a limited period of
18 months from 12 October 2015 to 5 April 2017
- It offers a one-off opportunity to increase an individual's
State Pension income for life, protected against inflation
- It can provide an additional income of between £1 and £25 per
week equating to £52 and £1,300 a year respectively.
- The one-off contribution needed is based on the individual's
age; reducing with age. For example, for a 65 year-old, to get an
extra £5 a week of State Pension for life (£260 a year), they would
need to pay a lump sum contribution of £4,450, compared to £3,370
if they were aged 75.
- In most cases, a surviving spouse or civil partner inherit at
least half of the State Pension top on the individual's death.
Given the attractive return on capital that is typically double
the rate offered for a similar annuity in the open market it is an
offer that should seriously be considered by those who will have
attained SPA on or before 5 April 2016, if they are income poor
Eligibility for carry forward
(AF3, CF4, JO5, FA2, RO8, RO4)
To carry forward unused annual allowance to the current tax year
from one or more of the previous three tax years, the individual
must have been a member of a registered pension scheme at some
point in the earlier tax year.
If the individual was a member of a registered pension scheme
but, in one particular tax year, did not have a pension input
amount for that year then they can carry forward the full amount of
the annual allowance from that year. Equally, if they were not a
member of a registered pension scheme at any time during a previous
tax year then they will not have unused annual allowance to carry
forward from that year.
HMRC makes it clear what constitutes being treated as a "member"
includes either an active member, a pensioner member, a deferred
member or a pension credit member of a pension scheme. This is
based on section 151 FA 2004.
As the requirement is to have been a member of a registered
pension scheme specifically at some point in a tax year, it is
possible to have an unused annual allowance to carry forward even
where there is no pension input amount for that tax year. This is
set out in section 228A (4) FA 2004.
For example, in the tax year 2014/15, an individual is a
deferred member of a registered pension scheme but has no pension
input amount (PIA) for that year in respect of the deferred
benefits. If they have no other pension input amount to take into
account for that year, the individual would have unused annual
allowance of £40,000 for that tax year.
Another example, an individual joins a registered pension scheme
for the first time on 1 June 2014 with a first pension input period
of 1 June 2014 to 1 June 2015. The first tax year that they will
have any PIA is 2015/16 but as the individual was a member of a
registered pension scheme in the 2014/15 tax year they will have a
deemed unused annual allowance of £40,000 to carry forward from
that tax year.
For most individuals being a member of a registered pension
scheme at some point during a previous tax year will be the first
requirement that must be met in order to determine how much unused
annual allowance can then be carried forward from that year.
However some individuals might still be able to carry forward
unused annual allowance from a previous tax year despite not being
a member of a registered pension scheme at any time during that
year. This would occur if, during the previous tax year, the
individual was instead a "currently-relieved member" of a
"currently-relieved non-UK pension scheme" for any of the previous
three tax years.
We have been asked in the past about the position in respect of
an individual who is in receipt of dependant's benefits from a
pension. It is our understanding that for the purposes of carry
forward, as a "dependant member", a "nominee member" or a
"successor member", does not fall within the definition of "member"
set out in section 151, "beneficiaries" will not have any
entitlement to carry forward of unused annual allowance in respect
of their "beneficiary entitlement, unless they also fell within one
of the types of membership defined in section 151.
We understand from HMRC, that the following individuals would
fall within the definition of member, as set out in section
- An individual whose only membership of a registered pension
scheme was as a result of pre A-Day contributions or accrual, as
this would fall under "deferred member".
- An individuals whose only membership of a registered pension
scheme was due to being in receipt of a pension paid either as a
member's lifetime annuity, a member's drawdown pension or a
member's scheme pension, as this would fall under the "pensioner
HMRC publish Newsletter 70
(AF3, CF4, JO5, FA2, RO8, RO4)
On 21st July, HMRC published Pension Schemes Newsletter 70.
The newsletter covers:
Certificates of residence
HMRC has seen an increase in applications requesting certificate
of residence for countries that are subject to tax and therefore
don't qualify for a certificate.
A certificate of residence will only be issued for countries
that the UK holds a tax treaty with where taxes are liable. A
certificate of residence cannot be issued for any country where
taxes are the subject of present convention, for example, Portugal
This section looks at the changes as announced by George
- The tapered annual allowance,
- Protection (Fixed & Individual 2016 details to be published
late summer 2015)
- Tax on lump sum death benefits from 2016
- Delay of secondary annuity market implementation until
- Consultation on tax relief (ends 30th September
- Pending consultation regarding the use of UEFRBS
Pension flexibility - forms for claiming repayment of
Printable versions of the P50Z, P53Z and P55 forms are now
available. Scheme members can use these forms to make a repayment
claim for overpaid tax on payments taken under the new pension
- P50Z - scheme members should only use this
form if they have flexibly accessed the whole of their pension pot
and have no continuing source of income (other than State
- P53Z - scheme members should only use this
form if they have flexibly accessed the whole of their pension pot
but have a continuing source of income, eg employment or
- P55 - scheme members should only use this form
if they have flexibly accessed some of their pension pot, are not
taking regular payments and pension body is unable to make any
Contacting Pension scheme services
Reminder to use the Pensions Tax Manual before contacting the
Pension Scheme Services first.
Routine updates/changes to Pension Schemes
At the end of July 2015 HMRC will be making some changes to
Pension Schemes Online. These changes include removing the option
for a scheme administrator to add themselves to an unknown scheme
online or submit an online return for an unknown scheme.
From 27 July 2015 you will need a Pension Scheme Tax Reference
(PSTR) to complete these actions. If you are a scheme administrator
but don't have a PSTR you will need to contact HMRC with the SF
reference of the unknown scheme and you can do this by calling the
Pensions schemes helpline.
Following these changes, scheme administrators will still be
able to add themselves as an administrator of a deferred annuity
contract using the policy reference number and this will generate a
PSTR that they can then use to submit returns. The changes keep
this existing functionality for deferred annuity contracts but from
27 July 2015 this will also include retirement annuity