Personal Finance Society news update from 17 June 2015 -
30 June 2015 on taxation, retirement planning, and
Taxation and Trusts
Taxation and trusts
A wider range of investments can be held in an ISA or
CTF account from 1 July
(RO2, AF4, CF2, FA5, FA7)
The Individual Savings Account and the Child Trust Fund rules
have been extended to include a wider range of eligible investments
which can be held in either account.
From 1 July 2015, under regulations published on 15 June 2015,
the list of eligible investments for ISAs and CTF accounts has been
extended to include the following:-
- Securities or shares issued by co-operative societies or
community benefit societies, or their subsidiaries.
- Investment trusts without restriction. Previously,
an investment trust was only eligible for an ISA if no more than
50% of the investment trust's investments by value were themselves
assets capable of being held in an ISA.
- Certain securities issued by a company (or a subsidiary)
where the securities or the company is admitted to trading (but not
listed) on a recognised EEA stock exchange. The previous
requirement was that such securities or company had to be
Full details available here.
The government will also explore extending the range of eligible
investments to include debt and equity securities offered via
crowdfunding platforms and consult in the Summer on how to include
The abolition of bearer shares
The Small Business, Enterprise and Employment Act
2015 introduces measures to increase transparency around who
ultimately owns and controls UK companies. The first of these
measures is the abolition of bearer shares
This new provision is in line with the government's stated
objective to ensure that the UK continues to be recognised globally
as a trusted and fair place to do business.
Bearer shares are shares that have been issued but are not
written up in the company's register of members. Ownership of them
is determined solely by possession of the share certificate.
Bearer shares in UK companies are being abolished. No new
bearer shares have been able to be issued since 26 May 2015 and, by
26 February 2016, all existing bearer shares must be surrendered.
All bearer shares remaining in issue on this date will be
cancelled. There are detailed provisions of what companies must do
to comply with the new rules
The stated aims of this measure are:
- To directly remove an easy means of facilitating illegal
activity, and ensure the UK is compliant with international
- To increase transparency around who owns and controls UK
companies and as part of the Transparency and Trust reforms to
deter, identify and sanction those who hide their interest in UK
companies to facilitate illegal activities.
It is expected that enhanced transparency will also promote good
The legislation is also in line with the government's
commitments in the UK's G8 Action Plan and meets the Financial
Action Task Force standards in relation to transparency of company
ownership and control.
Conservative calls for additional rate tax
According to the Financial Times, George Osborne is
considering planning to use his second Budget next month to make
radical shifts towards what prime minister, David Cameron, has
described as a "lower-tax, lower-welfare" economy.
It has been reported that he has indicated in Treasury meetings
that he might cut the current 45% tax rate to 40% on earnings
The 40% income tax rate was increased to 50% by Labour in 2009
following the financial crisis but was reduced to 45% by George
Osborne in his 2012 Budget so it will be interesting to see if a
further cut to 40% is actually announced.
The Conservatives have also promised to cut
pension tax relief for the highest earners and George Osborne
is also expected to announce a £5bn crackdown on tax avoidance.
The press article also states that he will use the Budget to
raise the income tax threshold for those on low earnings and to
make progress towards a £50,000 starting rate for the current 40%
With less than two weeks to the second Budget it will
nevertheless be interesting to see what announcements are made and
when they will come into effect.
Do Attorneys have authority to delegate investment
(RO2, AF4, CF2, FA7)
A recent article in the Times alleged that
discretionary fund managers are routinely refusing to accept
instructions from attorneys acting under a lasting or enduring
power on the basis that attorneys do not have power to delegate -
thereby forcing attorneys to close investment accounts to the
financial detriment of the account holders.
It is a basic principle of the law of agency that an attorney
cannot delegate their authority. Such a duty is imposed because of
the discretion and trust reposed in the attorney(s) by the
However, there are exceptions to this general rule and, like any
other agent, an attorney acting under a lasting power of attorney
(LPA) has an implied power in certain circumstances to
- any functions which are of a purely administrative nature and
do not involve or require the exercise of discretion
- any functions which the donor would not expect the attorney to
attend to personally, or
- through necessity or unforeseen circumstances (although caution
should be exercised before relying on this exception)
This position is reinforced by the Mental Capacity Act Code of
Practice which states at 7.62 that 'in certain circumstances,
attorneys may have limited powers to delegate (for example, through
necessity or unforeseen circumstances, or for specific tasks which
the donor would not have expected the attorney to attend to
Assuming then that a donor would not be expected to personally
attend to the management of an investment portfolio, this would
suggest that an attorneydoesin fact have the authority to delegate
investment management to a discretionary fund manager (DFM) and
that any DFM who does refuse to act on the instructions of an
attorney is misguided.
Even if the duty not to delegate is strictly interpreted, it is
clear that it is possible for a donor to expressly authorise an
attorney to delegate an investment (or indeed any discretionary)
function and, in cases where this is important to the donor, this
may therefore be a prudent measure.
Poor levels of understanding of LPAs among professional groups
is rife and the Government has recently accepted the recommendation
of a House of Lords committee that public and private sector bodies
should be 'educated' to address this. This initiative may go some
way to alleviating the problems that are reported as being
experienced by some attorneys in relation to the delegation of
Have you renewed your tax credits?
Now is a good time to remind clients to renew their tax credits
if they haven't already done so.
Most applicants should be sent a renewal pack between April and
June. Clients who do not receive a renewal pack by 30 June should
contact the Tax Credits Helpline between the hours of 8am to 8pm by
calling: 0345 300 3900.
However, if tax credits have been claimed after 6 April, the
renewal pack is usually sent the following year.
The deadline for renewing tax credits is usually 31 July 2015
unless the renewal pack gives a different deadline. Failure to
renew will result in payments being stopped and a repayment of any
tax credits received since 6 April. If the renewal is sent within
30 days of receiving the statement, payments will restart and be
backdated to 6 April. However, failure to respond to the statement
within 30 days of receipt will result in the need to make a new
The simplest way to renew tax credits is by following the
various steps using HMRC's online system.
As always, early action will avoid unnecessary delay and
A holographic diary entry held to be a valid will in
(AF1, RO3, JO2)
The Scottish Courts have ruled an unwitnessed, handwritten entry in a
notebook diary setting out the writer's desire to leave her
"wealthy remains" to one of her sisters to be a valid will.
The Sheriff Principal at Edinburgh High Court allowed an appeal
by Anne Hamilton against an earlier Sheriff's decision, finding
that "the meaning of the document in the sense of it being a will
is obvious to me and unequivocally sets out [the deceased's] wishes
and testamentary intentions."
Under Scots law, a will must conform to a number of legal rules
in order to be valid:
- The person making the will must have the capacity to make a
will. Scots law presumes that adults have the requisite capacity to
make a will unless there is evidence to displace that presumption.
The test of capacity is whether the person understood the nature
and effect of their will;
- The document must be in the handwriting of and subscribed (i.e.
signed) by the deceased; and
- The writing must demonstrate a clear and concluded testamentary
While evidence was presented to show that the deceased was a
"functioning alcoholic"; there was no evidence that the deceased
was so inebriated that she was not of sound mind when she made the
handwritten, signed entry of 20 January 2012.Accordingly, the key
question was whether the writing demonstrated a clear and concluded
testamentary intention i.e. could the document properly be regarded
as a will disposing of the deceased's estate?
In Scotland holographic wills (i.e. those that are handwritten
by the testator and not witnessed) are valid but are not considered
self-evidencing, hence evidence will need to be presented to the
Sheriff Clerk that the document is indeed the work of the testator
in their own handwriting. The law on holographic wills in Scotland
changed in 1995.
In England and Wales, a will may be handwritten, but is not
legally valid without witnesses.
Tax changes ahead in upcoming budget?
(AF1, AF2, AF3, RO3, RO8, JO2, JO3, JO5, FA2)
Until recently the general view was that the Budget on 8th July
was likely to primarily address the expenditure side of the Budget
equation with the focus on reducing the fiscal deficit of around
Focus will, of course, remain on the plans for, and
implementation of, spending cuts - but some commentators (the FT
especially) believe that the chancellor will also look to
substantially overhaul the tax system and introduce some changes
that will move the fiscal landscape closer to Conservative
philosophy. Some of these changes have already been referenced in
Here are some of the rumoured changes which are being
- Abolition of the additional rate of tax.
- Some further tightening of the rules on the tax privileges that
go with "non-domiciled" status.
- Some revaluation of council tax bands.
- The introduction of a new £175k nil rate band for the main
- A reduction in the annual allowance by £1 for every £2 of
income over £150,000 has already been referenced in the manifesto
as the means of funding the proposed £175k main residence nil rate
band for IHT. We also know that there is to be a proposed reduction
in the Lifetime Allowance to £1m in 2016/7. But we also have a new
Pensions Minister who seems not to be a fan of reducing the
- Removal of salary sacrifice.
- Removal of mortgage interest relief on buy-to-let
- Capital gains tax rates to be aligned with income tax
- A cap on qualifying principal private resident gains.
- A reduction in the upper limit for entrepreneurs' relief to
All just thoughts at the moment but July the 8th could be
Disclosure of the ultimate beneficial owners of UK
The European Parliament recently introduced the Fourth Money Laundering Directive, which will
require EU Member States to introduce beneficial ownership
registers for companies incorporated in their respective
The UK, with the Small Business, Enterprise and Employment
(SBEE) Act 2015, has gone further and has unilaterally
introduced, together with a number of other wide-ranging measures,
a full, publicly accessible, register of the details of the
beneficial owners of companies (but not partnerships, including
LLPs) which are incorporated in the UK.
From January 2016, UK companies incorporated under the Companies
Acts will be required to obtain and hold a register of all persons
who exercise 'significant control' over the company. A person will
be a 'person with significant control' (or "PSC") if he or she,
directly or indirectly:
- holds 25% or more of the shares in the capital of the company
(calculated by reference to their nominal value); or
- is entitled to exercise 25% or more of the voting rights in the
- is entitled to appoint the majority of the board of directors
(or control their appointment or subsequent removal); or
- is otherwise able to exercise 'significant influence or
control' over the company.
UK companies will be required to register the personal details
of such PSCs with Companies House by April 2016 for inclusion in
the public register.
Companies will be required to take reasonable
steps to identify people they know or suspect to have significant
control, including by giving notice to PSCs and others to obtain
information. PSCs will be required to disclose their interest in
the company to the company in certain circumstances. In certain
circumstances details of a legal entity (a 'relevant legal entity')
rather than an individual must be noted in the register.
The PSC register will include information on an
individual's name, date of birth, nationality, address and details
of their interest in the company.
Companies will be required to update this
information if they know or might reasonably be expected to have
known that a change to their PSCs has occurred. PSCs will, in
certain circumstances, be required to inform the company of any
changes to the information recorded.
Companies will be required to provide an initial
statement about their PSCs to the registrar of companies (Companies
House) on incorporation. They will then be required to update this
information at least once every 12 months in the context of new
requirements to deliver a confirmation statement.
Information will be publicly accessible with the
exception of the PSC's residential address. The 'day' of the date
of birth will not be disclosed on the public register at Companies
House unless the company elects to hold its own PSC register at
Companies House. Individuals at serious risk of violence or
intimidation will be able to apply to have information suppressed
Where a qualifying beneficial interest in a company is held
through a trust arrangement, the trustee(s) or persons exercising
control over the trust activities will be required to be disclosed
as the beneficial owner.
To deal with individuals or companies who break the rules,
company law criminal offences will be extended and/or
The stated aim of these measures is to increase transparency
around who ultimately owns and controls UK companies, as well as to
comply with the fourth Money Laundering Directive. As indicated
above, the UK measures go beyond what is required under the
Directive. The government hopes that the new rules will help deter,
identify and sanction those who hide their interests in UK
companies to facilitate illegal activities. It is hoped that
enhanced transparency will also promote good corporate
The May inflation numbers
(RO2, AF4, CF2, FA7)
April's brief flirtation with deflation has ended. Annual CPI
inflation rose to +0.1% in May 2015.
Annual inflation on the CPI measure turned positive in May, with
the rate rising 0.2% to +0.1%. The May inflation numbers from the Office for National Statistics
(ONS) were in line with market expectations, which had been for
rising petrol prices to nudge the CPI into positive territory.
The CPI still showed prices rising 0.2% over the month, whereas
they decreased by 0.1% between April and May 2014. Rounding
explains why the CPI did not rise by 0.3%.
The CPI/RPI gap narrowed marginally this month,
with the RPI rising to 1.0% on an annual basis. Over the month, the
RPI rose by 0.2%.
The change in the CPI's annual rate was driven
by two main upward factors and one downward driver, according to
Transport: Overall prices rose by 0.6%
between April and May 2015, compared with a fall of 0.7% a year
earlier. The majority of the upward contribution came from
transport services, particularly air transport where fares rose
this year but fell a year ago. The ONS notes that changes in fares
between April and May vary notably year on year, with the timing of
Easter a likely factor in the movements..
There was also a significant upward effect from
motor fuels with average petrol prices rising by 2.5p per litre
between April and May this year compared with a smaller rise of
0.4p a year earlier. Diesel prices also rose this year by 1.5 pence
per litre, compared with a rise of 0.3 pence per litre a year
Food and non-alcoholic beverages:
Overall prices fell by 0.1% between April and May this year but a
year ago the corresponding figure was 1.1%. The upward effect came
from a variety of product groups, most notably vegetables, bread
and cereals, and sugar, jam, syrups, chocolate and confectionery.
Food prices alone were up 0.1% over the month, the first monthly
rise since December.
Recreation and culture: Overall prices
fell by 0.1% between April and May 2015, compared with a rise of
0.4% between the same two months a year ago. The downward effects
came principally from games, toys and hobbies (notably computer
games) and data processing equipment (principally computer
peripherals such as printers and routers).
Core CPI inflation (CPI excluding energy, food,
alcohol and tobacco) was an annual 0.9%, up 0.1%. Five of the
twelve components of the CPI index remain in negative annual
territory, one less than last month.
Negative CPI numbers were not expected to last and so it has
proved. The outlook for the coming months is for inflation to rise,
albeit only modestly.
Tax revenue: good news ahead of the second
(RO2, AF4, CF2, FA7)
The latest National Statistics data on public sector finances
suggest that the Chancellor has some extra wriggle room as he
prepares his second Budget of 2015.
On 19 June the Office for National Statistics (ONS) issued its
latest bulletin on the state of public finances, the
last that will appear before the second Budget on 8 July.
These included the third estimate for 2014/15
government borrowing - strictly public sector net borrowing
excluding public sector banks ("PSNB ex"). This came in at £89.2bn,
£1bn less than the estimate made at the time of the spring Budget.
Nevertheless, a year's borrowing equivalent to 4.9% of GDP is a
reminder that when the Chancellor talks about legislating for
permanent governmentsurplusesduring 'normal times', he is most
definitely not talking about anything imminent.
Back in March, the 2015/16 PSNB ex was forecast
to be £75.3bn by the Office for Budget Responsibility (OBR). The
OBR will be updating its numbers for the second Budget: it will be
interesting to see what changes it makes and how these are
justified across such a short timescale.
One pointer to the adjustments that did emerge
with the ONS statistics was the May monthly PSNB ex of £10.1bn.
This was lower than economists had expected and £2.3bn less than
for May 2014. Over the first two months of 2015/16 borrowing has
reached £16.4bn, £5.0bn (23%) below the corresponding figure for
last year. If that performance is maintained for the remainder of
the year - a big if so early in the year - then the PSNB ex will
come in at about £7bn less than the OBR's forecast.
The statistics also contained some good news on
income tax for the Chancellor. Receipts in May were up 5.3%
year-on-year, whereas in May 2014 they were down 9.3% on May 2013
(a reflection of the distorting effect of the 5% reduction in
additional rate tax in 2013/14). Poor growth in income tax receipts
had been one of the puzzles of public finances, so perhaps matters
are now returning to normal.
Given the relatively good numbers, it is
possible that Mr Osborne will take the opportunity to even out his
spending plans over the next few years. In March the head of the
OBR, Robert Chote, openly criticised the Chancellor for plans that
created "something of a rollercoaster profile" over the duration of
this Parliament. The picture was of a severe squeeze in 2016/17 and
2017/18 followed by an easing off in 2018/19 and a reversal to
spendinggrowthin 2019/20 - just ahead of the next election.
Mr Osborne seems to have the numbers falling in
his favour at present, so that £12bn round of cuts to in-work
benefits may be spread out over a longer period than is currently
(RO2, AF4, CF2, FA7)
National Savings & Investments (NS&I) has just published
its latest report and accounts for the year ending 31
March 2015. These show that NSI raised £18.2bn last year against
£3.4bn in 2013/14.
NS&I's original financing target for 2014/15
had been £13bn ±£2bn, a figure announced at the time of the 2014
Budget to allow for an expected increased inflow from increased
Premium Bond limits and the 65+ Guaranteed Growth Bonds (aka
Pensioner Bonds). At the time the Chancellor had said he would be
"allowing inflows of up to £10bn" for the Pensioner Bonds.
In the Autumn Statement - before the Bonds were
launched - the Chancellor nudged up the central number of the range
to £13.5bn. Then in the March 2015 Budget - with an election
looming - Mr Osborne decided that Pensioner Bonds would remain on
sale, regardless of how much they raised, until 15 May (8 days
after the polls closed). The NS&I accounts show that by the end
of March the Bonds had raised just over £11bn.
These bonds were an expensive way for the
government to raise money and this point has been underlined in the
numbers produced by NS&I. One of NS&I yardsticks is a
"Value Indicator", which is a measure of NS&I's
cost-effectiveness in raising finance. It compares the total cost
of delivering NS&I's financing and servicing existing
customers' deposits with how much it would cost the government to
raise funds through the wholesale market via equivalent maturity
gilts. The Pensioner Bonds are specifically excluded in calculating
the Value Indicator…
Perhaps surprisingly, Pensioner Bonds were not the largest
source of new monies for NS&I in 2014/15: that title goes to
Premium Bonds, which attracted £12.3bn from savers/punters.
However, there was also a £6.7bn outflow as Premium Bond holders
cashed in, so Pensioner Bonds comfortably took thenetinflow
NS&I's target for 2015/16 is to raise £10bn ±£2bn. To judge
by last year's performance, it will now be relying heavily on
Premiums Bonds to achieve this figure. It is worth noting that
these sales will all be direct from 1 July as NS&I's final link
with the Post Office - selling Premium Bonds over the counter -
ends on that date.
Offshore funds coming onshore
(RO2, AF4, CF2, FA7)
We recently had a query about why one of the larger offshore
property funds had chosen to convert to a UK REIT last month. This
was not the first of these types of fund to come onshore, so we
thought we would explain why the lure of the Channel Islands is
fading. There are some interesting reasons why.
The first thing to note is that pure Guernsey
property companies are still subject to UK tax (at 20%) on rental
income arising in the UK, although they are not subject to capital
gains tax, nor any Guernsey tax. As the companies are generally
geared (ie they use borrowing to increase the size of their
portfolios), in the past they have been able to offset interest
payable against their UK rental income, with the result that the
actual UK tax paid has often been small or even non-existent.
Changes to borrowing (including lower interest
rates on re-financed debt) have meant the threat of an increased UK
tax bill for two of the companies that have converted. For example,
F&C UK Real Estate Investments said in its circular on conversion that staying put
meant "…it is anticipated that [the] income tax charge will
increase in the future as a result of the refinancing of the
Group's intra-group loans over time".
The clearest comment came from Schroder Real
Estate Investment Trust (formerly Invista Foundation Property
Trust) which said "The income tax charge borne by the Group for the
period ended 31 March 2014 was £153,000. For the year ended 31
March 2015, it is estimated that the income tax charge borne by the
Group will increase to £198,000…based on current practice, the
Company's tax advisors estimate that UK income tax payable is
likely to increase to between £1,450,000 and £1,700,000 per
In the case of the third conversion, Standard
Life Investments Property Income Trust, the company was running out
of tax losses: "The Group currently has brought forward taxable
losses to offset against [£5m net] taxable income. However, once
these losses are fully utilised it is expected that the Group will
suffer UK income tax on its net taxable income".
Conversion to a REIT has the following
consequences for all three companies:
- They become UK resident for tax purposes. That does not mean
they have moved their incorporation base from Guernsey, but it does
mean board meetings must take place in the UK (where the fund
management has always resided).
- The REIT regime means that the companies have no UK tax to pay
on their rental income or capital gains, so long as they comply
with the REIT rules.
- Distributions of rental income made by the companies cease to
be foreign dividends, complete with a 10% tax credit and instead
become property income distributions (PIDs). With certain
exceptions, mainly for exempt investors, PIDs are paid with 20%
income tax deducted at source. So far converting companies have
kept their distributionratesunchanged, which effectively means a
20% income cut for taxpaying investors, but makes no difference for
tax-exempt investors (eg pension funds and ISA managers).
- As a UK REIT, there may be greater liquidity and investor
demand for the fund. Some institutional investors will consider
investment in UK REITs, but not offshore property funds.
The move onshore has been helped by the July
2012 abolition of the previous 2% asset value charge on conversion.
However, for taxpaying retail investors, it is not necessarily
SRIT and the annual allowance charge
(RO4, AF3, CF4, JO5, FA2, RO8)
As is ever the case, the more one looks into a new area of
legislation, one realises there are potential issues that need to
be addressed that perhaps were not at first obvious.
One of these issues is the way in which the annual allowance
charge will work for pension input periods ending on or after 6
As explained in PTM056110, the amount of the liability to be
charged is based upon the rate or rates of tax that would be
charged if their excess pension savings were added to their taxable
income. The eights steps set out are:
Step 1: How to work out the annual allowance tax
Establish the taxable income, after personal allowances, for the
year (called 'reduced net income' in tax legislation). This is the
amount on which the individual will actually pay tax for the
year. PTM056120 explains what is meant by reduced net
Step 2: How to work out the annual allowance tax
Work out how much of the total pension input amount for the tax
year is liable to the charge. This is the total pension input
amount for the tax year, less the annual allowance for that year,
less any unused annual allowance carried forward from earlier
years. (See PTM055100.)
Step 3: How to work out the annual allowance tax
Add together the reduced net income (from Step 1) and the excess
pension savings (from Step 2). The amount of pension saving (from
- over the higher rate limit will be taxed at 45%
- over the basic rate limit but below the higher rate limit will
be taxed at 40%
- below the basic rate limit will be taxed at 20%.
PTM056120 explains what is meant by basic rate
limit and higher rate limit.
Step 4: How to work out the annual allowance tax
Where the total after Step 3 exceeds the higher rate limit
(generally £150,000 but may be more if the individual's pension
contributions are paid using relief at source or Gift Aid donations
are made, see PTM056120) the excess is chargeable at 45%.
Step 5: How to work out the annual allowance tax
From the amount of excess pension savings (at Step 2) deduct the
amount brought into charge at 45% in Step 4.
Step 6: How to work out the annual allowance tax
Work out the difference between the higher and basic rate
Step 7: How to work out the annual allowance tax
If the amount after Step 5 is less than the amount after Step 6,
the amount at Step 5 is chargeable at 40 per cent. Otherwise the
amount chargeable at 40% is the difference between the higher and
basic rate limits from Step 6.
Step 8: How to work out the annual allowance tax
Any remaining amount of excess pension savings not brought into
charge in Step 4 or Step 7 is then chargeable at 20%.
It would seem there are two issues that will need to be
- For a "Scottish tax payer" will their annual allowance tax
charge be based upon the SRIT or those that apply to the rUK?
- If an individual is a "Scottish tax payer" in the year in which
pension contributions are paid but are no longer a "Scottish tax
payer" in the tax year in which the PIP ends and the annual
allowance liability is assessed, (or vice versa) how is the annual
allowance charge calculated?
We asked HMRC Pension Policy these questions and received the
We "are aware of this issue and are considering whether any
changes need to be made."
It remains to be seen at what stage these and other issues will
be resolved with legislation and guidance as necessary.
Perhaps this is partially behind HMRC's exploratory discussions
with the industry over possible changes to pension input
Possible IHT on drawdown funds on death of member/
dependant/ nominee/ successor
(RO4, AF3, CF4, JO5, FA2, RO8)
It has been suggested in certain areas of the pension press that
in the event of the death of an individual who is entitled to
flexi-access drawdown funds, the value of the funds will be treated
as forming part of his taxable estate for IHT purposes.
This is either on the basis that designation to drawdown results
in entitlement and that puts the pension benefits in the estate of
the person entitled, or on a particular interpretation of section
12(2A) which means that section 3(3) (the omission to exercise a
right rule) will apply when the member has crystallised
This is a quite challenging area of legislation given the recent
and extensive changes to how pension benefits can be drawn… and
this, together with past contrary and favourable interpretation
given to us by HMRC, has made this an uncertain area.
Technical Connection has previously had confirmation from HMRC
that IHT would not be payable, and so we have now sought, via
correspondence with HMRC, further clarification.
However, it has now been reported that HMRC have told Pension
Age that no IHT charge will arise and, if necessary, legislation
will be changed to facilitate this.
Until we receive clarification, this article is very
encouraging, and we are optimistic of a positive outcome.
Temporary suspension of the ROPS notification
(RO4, AF3, CF4, JO5, FA2, RO8)
As reported in Pension Schemes Newsletter 69, HMRC has
decided to temporarily suspend Recognised Overseas Pension Schemes
(ROPS) notifications list. The reason for this to temporary
suspension is that HMRC became aware that there are pension schemes
that have appeared on previous lists that do not meet the Pension
Age Test, one of the requirements to be a ROPS. They will not
appear on the list on its return so UK scheme administrators and
members cannot rely on previous lists as notification by the
pension scheme to HMRC.
Previously schemes that were based in an EU member State were
deemed to be a ROPS and there was no requirement for them to have a
certain minimum pension age. We understand that on 17 April
2015, HMRC wrote to all scheme administrators that appear on the
previous lists or that have ROPS status but have requested not to
appear on the public notifications list to specifically ask them
- Confirm that from 6 April 2015 onwards the scheme is a ROPS
under UK tax law
- Confirm how the scheme meets the Pension Age Test (which was
introduced from 6 April 2015 under Regulation 3(6A) The Pension
Schemes (Categories of Country and Requirements for Overseas
Pension Schemes and Recognised Overseas Pension Schemes)
Regulations 2006 - SI 2006/206); i.e. either by legislation in the
jurisdiction in which they are based or by a specific scheme
rule(s) that include a minimum pension age of 55% other than on
- Whether the scheme wishes to appear on the public list of ROPS
We are aware that HMRC seem to have become somewhat
"geographically embarrassed" with at least one letter being
addressed to a scheme administrator with the last part of the
postal address being "Dublin, Isle of Man"!
The ROPS notifications list will be available again from 1 July
2015 in a different format.
If a scheme is not a QROPS then a transfer to that scheme will
not be tax-free. Scheme administrators (and the transferring
member) will need to satisfy themselves that the scheme they are
transferring their UK pension benefits/fund to is a QROPS. As part
of the checks scheme administrators should always confirm with the
scheme manager of the scheme accepting the transfer that scheme
meets all of the requirements to be a ROPS, including the Pension
Age Test, from 6 April 2015 onwards.
If a scheme has ceased to be a QROPS, individuals who
transferred their pension savings to that pension scheme before it
ceased to be a QROPS will be subject to UK tax on the same basis as
if the scheme had remained a QROPS. They will be able to remain as
members and receive a pension paid from the sums transferred
without automatically incurring additional UK tax charges.
Schemes in general have tended to place undue reliance on the
QROPS list as a means of ensuring that a particular non UK pension
schemes meets the QROPS requirements. HMRC have made it clear
both in the RPSM and PTM (pages RPSM13104090 and PTM112400) that
the "published list is there so scheme administrators of registered
pension schemes and overseas pension scheme managers can, as one
part of their due diligence, verify that an entity that is on the
list has notified HMRC it meets the conditions to be a ROPS. .
. it is not intended for use for any other purpose and is not
intended to give assurance that HMRC has checked all the
information provided for any named scheme. Nor does it guarantee
that a transfer made to an entity that appears on the list will be
free of UK tax."
The absence of the QROPS list, even where schemes do not rely on
it, a significant element of their due diligence capability has
fallen away until the new list is published.
If the new list is to be published in 1 July 2015 as stated, it
simply means that a QROPS transfer may be delayed by a couple of
weeks, which for the majority of individuals should not be a
Of course the penalties for transferring to a non UK pension
scheme that is not a QROPS are significant and would result in
charges of at least 70% of the transferred amount, made up of:
- 40% unauthorised payment charge,
- 15% unauthorised payment surcharge, and the
- 15% scheme sanction charge, which could be as much as 40% if
the member doesn't pay their unauthorised payments charge.
Of this up to 40% could be charged to the scheme administrator
and of course by the time the charge is applied the transfer will
have completed, meaning that the assets are no longer held in the
registered UK pension scheme are no longer in the scheme for the
administrator to appropriate (as is often a clause in their rules)
to pay the scheme sanction charge and therefore the charge could
fall of the scheme administrator.
Therefore the simple answer is for the scheme administrator to
delay the transfer so as to mitigate the risks to them. This
explains the stance of a number of UK scheme administrators.
However, where there is a connection formal or otherwise between
the UK scheme administrators and the selected QROPS, then there is
unlikely to be the same reticence in making a transfer.