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My PFS - Technical news - 15/05/18


Personal Finance Society news update from 26th April to 9th May 2018.

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Taxation and Trusts

Investment planning




Community investment tax relief

(AF2, JO3)

HMRC has published updated guidance on community investment tax relief (CITR).

The CITR scheme

CITR was introduced to encourage investment in disadvantaged communities by giving tax relief to investors who back businesses and other enterprises in less advantaged areas by investing in accredited Community Development Finance Institutions (CDFIs).

Tax relief is available to individuals or companies who invest in CDFIs, accredited by the Department for Business, Energy & Industrial Strategy (BEIS). Here’s the list of accredited CDFIs.

According to research carried out by the Community Investment Services Ltd, in March 2018, the scheme has generated £145 million of CITR investment since its launch in 2002, facilitating £217 million of lending into SMEs in disadvantaged communities, and creating over £1.5 billion of value in local economies, at a cost to the taxpayer of £36 million.

Tax relief

An investor can claim tax relief of up to 5% of the amount invested for each of the five tax years starting with the year in which the investment is made, ie. a maximum of 25% of the amount invested.
To qualify for tax relief the investment must be:

  • a subscription for shares in, or securities of, the CDFI;
  • a loan to the CDFI; or
  • a deposit with a CDFI that is a bank.

For individuals, tax relief is given as a tax reducer, against income tax. It can’t be used to reduce capital gains tax. For companies, relief is given against corporation tax. For investments made on or after 6 April 2013, any unused relief can be carried forward to later years within the five-year investment period.
For investments made on or before 5 April 2013, if for any year, or accounting period, the investor didn’t have enough income tax or corporation tax liability to make full use of the relief, any unused relief would have been lost.

Relief is due on the ‘invested amount’, meaning:

  • Shares or securities - the amount subscribed;
  • Loans to a CDFI / deposits with a CDFI that is a bank - the original advance or deposit. However, if any part of a loan is repaid, or if any part of a deposit is withdrawn, during the five year investment period, tax relief will be reduced.

Whatever type of investment is made, if within five years of making the investment the investor:

  • receives payment or value from the CDFI that exceeds a reasonable commercial payment of interest, dividends, goods, rent etc., or
  • disposes of all or part of the investment,

the amount of relief available may be reduced or, in some cases, withdrawn altogether.

A tax relief certificate will be issued by the CDFI after the tax year to which the claim relates has ended. A CDFI won’t issue a tax relief certificate unless an investment satisfies the rules of the scheme as they apply to the CDFI. The investor must also satisfy the following requirements:

  • they must be the beneficial owner of the investment;
  • they must not be a company that is itself a CDFI;
  • there must be no arrangements under which the investor is protected from the risks that would otherwise attach to the making of the investment;
  • the investment must not be part of a tax avoidance scheme.

Tax relief under the CITR scheme is not available to investors if during the five-year investment period the investor, including any person connected with the investor, possesses, or is entitled to acquire in the future, rights or powers that give the investor control of the CDFI. And where the CDFI is a partnership, the investment must not represent a capital contribution of an investor who is member of the CDFI.
An individual investor can effectively get the benefit of the relief within the current tax year, either through their PAYE coding or by claiming a reduction in a self-assessment payment on account. However, it will still be necessary to make a formal claim for relief after the tax year has ended.


Tax relief is restricted to the smaller of:

  • 5% of the invested amount for the tax year, or accounting period; and
  • the amount that reduces the investor’s income tax or corporation tax liability to zero.

There is no limit to the amount of investment on which an individual investor may claim relief under the CITR scheme. However, the amount of relief that can be received by a corporate investor is limited by de minimis rules.
The de minimis policy, begun by the European Commission in 1992, is designed to benefit small and medium sized enterprises (SMEs). Current de minimis rules provide that subsidies of less than €200,000 granted to an undertaking over a period of three years do not constitute “State Aid” within the meaning of the EC Treaty’s ban on aid liable to distort competition (Article 87). Subsidies below that amount are presumed to have only negligible effects on competition and trade between Member States.
HMRC’s 'Guide to calculate the de minimis aid for companies' has been updated to clarify the use of a commercial rate in relation to loan investments. It offers the following help where banks are not prepared to lend in the CDFI space, or where the rates are prohibitive:

‘Where this is a barrier Responsible Finance can support a CDFI to provide an investor with cross sector evidence to support setting a reasonable rate, and can seek a view from Government on the robustness of the underlying methodology.’

For more information on CITRs, please see HMRC’s CITR manual.

Sources:                HMRC guidance: Community Investment Tax Relief – dated 16 April 2018.

                                Responsible Finance (previously the Community Development Finance Association)                                         guidance: Community Investment Services Ltd research – dated 16 March 2018.

Record tax take in 2017/18

(AF1, AF2, JO3, RO3)

Alongside the initial public sector borrowing figures for 2017/18 HMRC issued its statistics for tax and receipts covering the last financial year. These showed that the IHT raised during the year reached £5,215m, a new record and up 8.1% over the 2016/17 figure. As the graph below shows, the government’s IHT take has been on a relentless upward march since its low point of £2,384m in 2009/10, when transferability of the nil rate band was kicking in and, coincidentally, the nil rate band was frozen at £325,000.  

Source of figures for the graph is HMRC.

In March 2017 the OBR had projected 2017/18 IHT income of £5.0bn, noting that “Receipts have been revised up over the forecast period due to slightly higher equity and house prices”.  The Spring 2018 OBR projection was that IHT would bring in £5.3bn in 2017/18, rising to £5.4bn in this tax year.

The rise in IHT has already prompted some comments about the impact (or lack thereof) of the residence nil rate band (RNRB), set at £100,000 in 2017/18. At this stage the questioning is slightly disingenuous. As the OBR has noted, “the majority of IHT receipts are received with a 6 to 12 month lag”, which means that probably the majority of the 2017/18 IHT relates to deaths before 6 April 2017, when the RNRB came into being.

This time delay is being forgotten. For example. according to the HMRC response to an FOI request from NFU Mutual, there were just over 3,000 claims for the RNRB in the period between April and December 2017, even though an estimated 24,000 estates paid IHT in 2017/18. This only sounds bad news if you ignore the fact that most of the IHT payments in April to December 2017 would have related to deaths that occurred in the pre-RNRB era. 

The fact that the IHT take is forecast by the OBR to rise by only £100m in 2018/19 and £200m in 2019/20 shows the impact of the RNRB working through.  

Longevity - being realistic about life expectancy is essential to realistic financial planning

The Institute for Fiscal Studies (IFS) have recently published findings showing the extent to which various age groups are misjudging how long they are likely to live.

It seems that, on average, those aged in their 50s and 60s underestimated their chances of survival to age 75 by about 20 percentage points and to 85 by around 5 to 10 percentage points.

According to the analysis, men born in the 1940s who were interviewed at age 65 considered that they had a 65 per cent chance of making it to age 75, far lower than the official estimate of 83 per cent.  For women, the equivalent figures were 65 per cent and 89 per cent.

In all of the above the IFS researchers compared individuals’ reported expectations of survival with official survival rates from the Office for National Statistics.

And the “underestimation” of longevity can have a serious impact on financial planning strategies.

Self-evidently, if you plan on the basis you will live until X but you actually live until Z you could be “caught short” (financially speaking)   and estimating T but surviving to Z makes it even worse – we could go on – you get the picture.  Cashflow modulers and tools are designed to expose and make clear this false optimism – usually articulated in big red blocks on a graph or chart.  It seems though (perhaps unsurprisingly) that not everyone is a user of such tools! Gamification maybe has a role to play here.

The IFS say that “when people underestimate their chances of surviving through their fifties, sixties and seventies they may save less during their working life, and spend more in the earlier years of retirement than is appropriate given their actual survival changes.”

“In contrast, people who overestimate their survival chances at the oldest ages may show an undue reluctance to spend their remaining wealth near the end of life.  By misjudging their longevity, individuals risk having a lower standard of living in retirement than would otherwise be possible.”

The analysis also found that some groups were more pessimistic than others about their survival chances, including widows and widowers at age 60. While their official chances of surviving to age 80 were 77 per cent and 67 per cent respectively, responses from these groups found they thought they had a 49 per cent and 39 per cent chance of reaching 80 – a huge gulf in both cases.

This implies that widows and widowers could be more prone to prematurely exhausting their retirement income.

Conversely, the analysis found older people in their 70s and 80s were, on average, overly optimistic about the likelihood of living to age 90 and beyond.  This could mean they spend too little of their income in the belief it will have to stretch out much longer.

These findings are helpful and insightful and serve as a strong reminder to advisers of their responsibility to their clients to ensure, as far as they can, that they are as aware as they can be about the size of their personal retirement funding challenge.

Before you even get to designing a tax effective “accumulation and then drawdown plan” though there is the absolute need to found the planning on clear understanding of what the reality is likely to be in relation to your expected lifespan.  Of course, nothing is certain though, so while it’s essential to “start somewhere” and ideally base that start on as close to what reality might look like for you  as possible, it’s absolutely essential to  commit (with the benefit that advice) to review, review, review.

Source:                  Institute for Fiscal Studies Working Paper (WP18/14) – subjective expectations of survival and economic behaviour

The latest ISA manager bulletin


In the most recent ISA manager bulletin it is stated that the format of the guidance notes for ISA managers has changed. It replaces the previous PDF format and is basically set out as a series of guides for ISA managers.

The collection contains 26 guides which cover all aspects of ISA management for ISA managers, including information requirements, how to open accounts, manage subscriptions, the different types of account, making transfers etc…

While this information is primarily aimed at ISA managers, the content is also helpful to advisers dealing with queries in relation to ISAs.

The bulletin also contains some information regarding a request to reverse a Junior ISA subscription where a payment has been made in error. In summary, the provider would need to contact HMRC via email to reverse such a subscription.

Finally, there is also some information regarding reporting on Lifetime ISAs.

First-time buyers’ relief saves buyers £159 million

(ER1, LP2, RO7)

According to the Government’s latest figures, in the period to 31 March this year, 69,000 first-time buyers have benefited from the abolition of stamp duty land tax (SDLT) on properties valued at under £300,000.
As a reminder, the rates of stamp duty on residential property in England and Northern Ireland are as follows:

On slice of value


£125,000 or less§


£125,001 to £250,000§


£250,001 to £925,000§*


£925,001 to £1,500,000*


Over £1,500,000*



*          15% for purchases over £500,000 by certain non-natural persons.

§          For first-time buyers of property up to £500,000 there is no SDLT on the first             £300,000.

¶          All rates increased by 3% for purchase of additional residential property if value is             £40,000 or more.

First-time buyers relief (FTBR) applies to purchases of dwellings for £500,000 or less, provided the purchaser has never owned a property and intends to occupy the property as their only or main residence. Under the relief, such purchasers are not liable to SDLT on transactions valued at £300,000 or less. On transactions valued at more than £300,000 but less than £500,000, they are liable to pay 5% SDLT on the portion over £300,000.

19% of all residential transactions to 31 March this year included a claim for FTBR. The total amount of SDLT relieved is estimated to be £159 million; half of which (49%) was, perhaps not surprisingly, seen in London and the South East.
19% of all FTBR transactions were in the South East; 13% were in London. The average amount relieved was £2,300: London had the highest average of £4,300; Northern Ireland had the lowest average at £800.
The Government estimates that FTBR will help over 1 million people to get onto the housing ladder over the next five years.

Despite the Government’s optimism, the Resolution Foundation’s report ‘Home improvements - Action to address the housing challenges faced by young people’ calls for a further reduction in stamp duty. The Foundation argues that “the main way to change the relative bargaining power of first time buyers would be to cut stamp duty across the board, while maintaining the surcharge for UK-based buyers of second and additional homes at current levels”.


  • Ministry of Housing, Communities & Local Government, HM Treasury, Dominic Raab MP, and The Rt Hon Mel Stride MP news story: 69,000 households benefit from cut to stamp duty – dated 26 April 2018;
  • HMRC National Statistics: Quarterly Stamp Duty Statistics – dated 26 April 2018;
  • Resolution Foundation report: Home improvements - Action to address the housing challenges faced by young people – dated 17 April 2018.

OTS IHT review

(AF1, RO3)

Back in mid-January the Chancellor wrote to the Office of Tax Simplification (OTS) asking it to review IHT. A month later the OTS published a document setting out the scope of its “IHT General Simplification Review”, ahead of a call for evidence.

That call for evidence was published on 27 April, with a final response date of 8 June – a period of six weeks. The document has 20 questions, spread across seven categories:

  1. IHT forms, administration and guidance;
  2. Lifetime gifts to individuals;
  3. Businesses;
  4. Farming businesses;
  5. Charitable giving;
  6. Other areas of complexity; and
  7. Wider IHT system.

The questions are largely as expected, probing the complexity and distortions caused by interacting reliefs and other taxes, while seeking ideas to “remove complexity”. The brief “Other areas of complexity” section is interesting, if a little worrying, as it states ‘You may, for example, wish to comment on the residence nil rate band, the IHT treatment of trusts, the IHT treatment of personal pensions and life insurance products…’

Alongside the formal document is an on-line survey which appears designed to highlight initially the insignificance of IHT – representing less than 1% of government revenue and affecting fewer than 5% of estates.

The short time for responses reflects the OTS’s aim to publish a report in Autumn 2018, to feed into the Autumn Budget.

There is not much political mileage for the Chancellor reducing the IHT take, so any simplification can be expected to be revenue neutral.  

Simple assessment roll out put on hold by HMRC

(AF1, RO3)

Under Simple Assessment, HMRC use information that it already holds to produce an income tax calculation for certain groups of taxpayers, removing the requirement for the submission of a self-assessment tax return. The first Simple Assessments were issued in 2016/2017 to:

  • New state pensioners with income of more than the personal tax allowance in the tax year 2016/2017;
  • PAYE taxpayers, who had underpaid tax and who could not have that tax collected through their tax code.

It’s understood that Simple Assessment will continue for these taxpayers.

However, the intention was that all existing state pensioners who complete a tax return because their state pension is more than their personal allowance would also be removed from Self Assessment in the tax year 2018/2019.

This roll out has now been delayed indefinitely.

At a Public Accounts Committee hearing on 30 April, HMRC confirmed that it had decided to “stop or considerably slow down” 39 of its 237 projects “in order to create the capacity and capability necessary for the incoming Brexit projects”, saying:

“The criteria we used were: which projects were urgent because of Brexit; which delivered us additional receipts; which delivered us cost-efficiency; plus four others in relation to people, reducing risk, the impact on customers, and alignment to the overall goals of HMRC. We very clearly prioritised Brexit, receipts and efficiency. If they did not meet those criteria, they got a lower priority.”

“We gave a triple weighting to Brexit, a double weighting to receipts, and a double weighting to cost-efficiency, so that those would be prioritised over the others—those with lower rates of driving receipts or those with lower rates of cashable efficiency would be further down the list.”

HMRC later confirmed the delay to the roll out of Simple Assessment in an email to various professional bodies.


  • Parliamentary business - Public Accounts Committee Oral evidence: HMRC's performance: progress review, HC 972 – dated Monday 30 April 2018;
  • ATT Press release: Opportunity for rethink on Simple Assessment and real time changes to PAYE tax codes – dated 1 May 2018.


The growth in dividend payments slows

(AF4, FA7, LP2, RO2)

Link Asset Services (formerly Capita) has published its latest quarterly dividend monitor, revealing a mixed picture for dividends in the first three months of 2018. The figures confirm the picture contained in data from the second half of 2017, showing that the dividend growth effects of sterling’s post-referendum decline were fading fast:

  • In the first quarter of 2018, total dividends payouts were 7.6% higher than in Q1 2017 at £16.7bn.
  • However, the increase was primarily down to a change in the dividend payment strategy of BAT, which acquired Reynolds in the US and moved from half yearly to quarterly distributions. That move alone added £1bn to the first quarter’s total dividends payments.
  • Special dividends accounted for £330m of payouts, over double the Q1 2017 figure. The jump could have something to do with the cut in the dividend allowance from 6 April.
  • Strip out the BAT change and the special dividends and underlying dividend growth was -0.1% year-on-year.
  • Link Asset Services attributes the slight decline to the strength of the pound against the US dollar, in which more than 40% of Q1 dividends are declared. Sterling was 12% stronger in Q1 2018 compared to Q1 2017, with a corresponding effect on the sterling value of US dollar dividend payouts (from, for example, Shell, BP, Vodafone and Astra Zeneca). In contrast, the pound was weaker against the euro, producing a small exchange-rate gain for investors in the small number of companies (eg Unilever) that declare their dividends in the currency.
  • BP and Shell alone accounted for almost a quarter of dividend payments in the quarter. Both companies set their dividend in US dollars. BP’s quarterly payment has been fixed at 10c since the end of 2014, while Shell’s has been 47c since June of that year. Higher oil prices have not yet fed through to dividends from this pair, not least because they did not cut dividends when oil prices dropped.
  • Payouts from the Top 100 companies rose 9.2% year-on-year, but this was due to special dividend and BAT distortions. The Top 100 accounted for 90% of total dividend payments in the quarter.
  • The more UK-focused Mid 250 registered a 10.8% drop in dividend increase, but this again was a distorted number. Link Asset Services reckons the undistorted number would have been 5.2% growth.
  • The concentration of dividend payouts in a handful of companies remains a serious issue. The top five payers (Shell, Astra Zeneca, BP, Vodafone and BAT) accounted for 47% of the quarter’s total payments. The next 10 companies accounted for 30%, meaning that just 15 companies were responsible for 77% of all UK dividends in Q1 2018.
  • Link Asset Services expects the picture of much less buoyant dividend growth to continue. For 2018 it now estimates dividends will rise 2.9% on an underlying basis, with total payouts up 1.8%.

The slowdown in dividend growth was no surprise – last year exchange rates provided a windfall, whereas this year, so far, they are creating a headwind.


HMRC pension schemes newsletter 98: trust registration service update

(AF3, FA2, JO5, RO4, RO8)

HMRC have published Newsletter 98 which gives an update to the somewhat lacking guidance on certain pension schemes having to register with the Trust Registration Service.

The guidance states:

HMRC introduced the Trust Registration Service (TRS) last year to help you and your scheme trustees meet your obligations under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 when you have incurred a UK tax liability.

As we know some pension scheme trustees have had difficulty using TRS we have changed the guidance. This means that now if your registered pension scheme is a trust, your scheme trustees don’t need to register separately on TRS. They can update their details by contacting Pension Schemes Services.

Whether you’ve incurred a UK tax liability or not you must keep the information required under the Money Laundering legislation in your own written records and provide it to us if we ask for it.

If you incur a UK tax liability and choose to register on TRS, you should not register as a new trust if you already have a unique taxpayer reference (UTR) as this will create another UTR and will lead to you or your trustees receiving Self-Assessment returns to complete for previous tax years.

If you choose to register on TRS and you’ve told us the value of the trust assets on a 41G paper, SA900 or SA970 tax returns or through another channel, when you register on TRS you should complete the ‘Other Asset’ field on TRS using the term – ‘Already notified’. You should leave all other asset fields marked as ‘£1’.

Other notable content in the newsletter:

  • Reporting of non-taxable death benefits – the issue with the tax coding notices being erroneously produced. This issue should be fixed in the summer (2018).
  • The Manage and Register Pension Schemes online service has now been delayed until Monday 4th June 2018 due to service issues. The current Pensions Schemes Online will continue until 6pm Friday 1st June 2018
  • Pensions flexibility statistics:

From 1 January 2018 to 31 March 2018 HMRC processed:

  • P55 = 6,218 forms
  • P53Z = 3,448 forms
  • P50Z = 988 forms

Total value repaid = £22,514,839

  • The annual allowance calculator has been taken down from the HMRC website due to ‘issues’ with it.
  • There is relief at source and pensions flexibility information for Scottish taxpayers:

If the member takes a payment from the pension scheme that doesn’t use up the pension pot, the first payment will be treated as an ongoing PAYE source.

If the recipient has a P45 dated on or after 6 April in the current tax year, you should operate the code on the P45 on a Week 1/Month 1 basis. If the code shows that the recipient is a Scottish taxpayer, the Scottish Income Tax rates will apply.

If payments are already made to the recipient, the additional pension flexibility payment should be added to the previous pension payment made in that tax period.

The tax will then be recalculated using the existing tax code that you’ve used, in line with Scottish Income Tax rates where the code is a Scottish tax code. This prevents the individual from incorrectly getting the benefit of the tax allowances twice.

You can find guidance on additional payments in a tax period at paragraph 1.12 of CWG2.

In all other circumstances, including where individuals have a P45 from the previous tax year (and regardless of any notification of residency status for the purposes of Pensions Tax Relief at Source), you should use the emergency code on a Week 1/Month 1 basis against the first payment in line with UK tax tables.

HMRC will issue a tax code to operate against future payments. You can find information about the emergency code for the 2018 to 2019 tax year in the GOV.UK guide Tax Codes.

Where tax has been deducted using emergency code, Scottish taxpayers have 2 options. They can:

  • wait until after the end of the tax year, when HMRC will reconcile their account using their Scottish tax code and make any repayment owed as part of its normal PAYE process
  • claim tax back in year by completing form P55, P53Z or P50Z, and HMRC will calculate the overpayment based on Scottish Income Tax rates and make a refund within 30.


  • – dated 3 May 2018

DWP issues guidance on bulk transfers without consent

(AF3, FA2, JO5, RO4, RO8)

Following consultation in October 2017 and the response published in February 2018 the DWP have now published guidance to help trustees with the process of bulk transfers without consent where there are no guarantees.

This guidance is in relation to The Occupational Pension Schemes (Preservation of Benefit and Charges and Governance) (Amendment) Regulations 2018 which amended regulation 12 of the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (“the Preservation Regulations 1991”), effective from 6 April 2018.

The amendments, in new regulations 12(1B) and 12(7) to (10), change the conditions that apply to the bulk transfer of certain money purchase rights of members of occupational pension schemes.

The guidance is non-statutory and but is intended to assist trustees in relation to the additional requirements brought in under these regulations. The guidance covers a variety of areas including:

  • Legislative requirements
  • Trustee duties
  • Good practice
  • Charge caps


  • – dated 30 April 2018

FAS increased cap for long service – regulations laid

(AF3, FA2, JO5, RO4, RO8)

Further to our bulletin PPFAB29 , 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.