PFS What's new bulletin - August II

TAXATION AND TRUSTS

 

HMRC Trusts and Estates Newsletter

(AF1, JO2, RO3)

 

The latest Trusts and Estates Newsletter is now available and covers the following: 

Reforms to inheritance tax, agricultural property relief and business property relief

The technical consultation on reforms to agricultural property relief and business property relief to inheritance tax (IHT) in relation to trusts closed in April 2025. On 21 July 2025, Legislation Day, the Government published a policy paper with draft legislation on the reforms. Please see reforms to agricultural property relief and business property relief.

You can send feedback on the draft legislation by emailing aprbpr.consult@hmrc.gov.uk.

The consultation on the draft legislation will close on 15 September 2025.

 

Reforms to IHT on pensions

 

The Government published a technical consultation on 30 October 2024 seeking views on the administrative proposal to make pension scheme administrators responsible for reporting and paying any IHT due on pensions to HMRC. 

 

On 21 July 2025, the Government published its response, Inheritance Tax on pensions: liability, reporting and payment. This sets out that, in response to the consultation, personal representatives, not pension scheme administrators, will be liable for reporting and paying IHT on unused pension funds and death benefits. The Government has also confirmed that, from 6 April 2027, all death in service benefits payable from registered pension schemes will be out of scope of IHT, regardless of whether the pension scheme is discretionary or non-discretionary.

 

The response document includes the high-level process for typical estates. Draft legislation has been published for technical consultation. The consultation mailbox is open for feedback on the legislation until 15 September 2025 — ihtonpensions@hmrc.gov.uk.

The Government will publish further draft legislation in due course on the changes required to the information sharing regulations.

 

New dedicated bereavement service phone number and postal address

 

Bereaved individuals or their representatives can call the new dedicated bereavement service to:

 

·       report a death;

·       settle all the deceased’s tax affairs up to the date of death;

·       ask about informal administration period tax.

The new number will use voice response messages to direct callers to the appropriate advisers for PAYE, self-assessment or Child Benefit. This is intended to ensure people reach the right team first time to discuss issues in a single call.

 

HMRC will continue to route any people that continue to use the existing numbers to bereavement advisers using the speech recognition platform. People should continue to use the BX9 1AS postcode for formal tax returns for the administration period.

 

Estates informal arrangements and tax-free amount

 

The March 2024 Newsletter described the tax-free amount for trust and estates introduced in Finance (No. 2) Act 2023. For estates, a £500 tax-free amount came into effect for the tax year 2024/25 onwards.

 

HMRC is receiving incorrect calculations for non-complex estates using the informal arrangements. HMRC is rejecting these calculations due to the incorrect use of this £500 tax-free amount for income before tax year 2024/25.

 

For income in tax years before 2024/25, the income is tax-free if the estate only has savings income for the whole of the administration period and the total of that income over that period does not exceed £500.

 

For income in tax years from 2024/25, the new £500 tax-free amount applies separately in relation to each year. Where taxable income exceeds that amount:

 

·       tax will be payable on the full amount — the £500 tax-free amount should not be deducted from the income;

·       unused amounts do not roll over to subsequent years.

 

Any calculation sent to HMRC should include a year-by-year breakdown of the income received. Please see guidance on reporting an estates’s income to HMRC.

 

Trusts and Estates tax return 2025 — reminder to complete ‘Question 9B.1’

 

The Trusts and Estates tax return for the year ended 5 April 2025 has changed. Question 9B.1 asks people to confirm the number of other trusts made by the settlor. This is because the new £500 exemption is divided if the settlor has made more than one trust. Please see guidance on the SA900 form and notes.

 

Some key points on the new £500 exemption are:

 

·       the £500 income exemption applies per trust or estate;

·       if a settlor created multiple trusts, the £500 limit is divided equally among them, with a minimum of £100 per trust.

 

Exemptions from this reduction include:

 

·       settlor-interested trusts;

·       vulnerable beneficiary trusts;

·       registered pension trusts; and

·       heritage maintenance trusts.

 

Please see more detailed guidance in section ‘Q9B Trust tax free amount’ of the Trust and Estate Tax Return Guide (2025).

 

Residence based tax regime

 

On 21 July 2025, the Government confirmed technical fixes to legislation contained in the Finance Act 2025. These fixes replaced the special tax rules relating to domicile and will be included as part of the 2026 Finance Bill to ensure that the legislation works as intended.

The Government also published a summary of responses to the Personal Tax Offshore Anti-Avoidance call for evidence which ran from 30 October 2024 and 19 February 2025. They are exploring options to make the rules simpler to apply in practice. The Government will consider how best to engage with relevant experts in shaping and taking forward further consultation in this area and provide an update in the Autumn.

 

Trust Registration Service — response to consultation

 

Between March 2024 and June 2024, HM Treasury consulted on proposals to improve the effectiveness of the Money Laundering Regulations, which included proposed changes to the regulations that apply for registering trusts. The Government has published its response to that consultation. Please see the consultation outcome Improving the effectiveness of the Money Laundering Regulations.

 

 

HMRC letters to corporation tax payers

(AF2, JO3)

 

Rates and allowances for corporation tax, associated companies and marginal rate relief

HMRC has advised the Chartered Institute of Taxation (CIOT) that it has recently commenced a One to Many letter campaign directed at companies that HMRC has identified as having potentially not declared associated companies in their corporation tax returns and thus having potentially claimed higher marginal rate relief than they are entitled to. The letter sending process commenced on 21 July and will run through to 6 October.  

 

Two letters are being used. A copy of each of the letters is provided below. Overall, the tone and framing of these letters are slightly different. In addition, one letter contains a section titled 'What happens next', which essentially discusses the potential for HMRC to open a compliance check if there is no response to the letter. HMRC has advised the CIOT that two letter variants have been issued to test the impact of different framing and tone has on the engagement of recipients.  

 

Letter 1 - Check you’ve paid the right amount of Corporation Tax
Letter 2 - Please check you’ve paid the right amount of Corporation Tax

 

 

 

 

 

 

Here is a table of corporation tax rates for the year starting 1 April: 

 

Rate for the year starting 1 April	2025	2024	2023	2021
Small profits rate (companies with profits under £50,000)	19%	19%	19%	-
Main rate (companies with profits over £250,000)	25%	25%	25%	-
Main rate (all profits except ring fence profits)	-	-	-	19%
Marginal relief lower limit	£50,000	£50,000	£50,000	-
Marginal relief upper limit	£250,000	£250,000	£250,000	-
Standard fraction	1/200	1/200	1/200	-
Special rate for unit trusts and open-ended investment companies (OEICs)*	20%	20%	20%	20%

 

The small profits rate applies to companies with profits of not more than £50,000, with marginal relief available for profits up to £250,000. This means that the 19% rate applies to the first £50,000 of profits and 26.5% for the excess up to £250,000 (£50,000 @ 19% + £200,000 @ 26.5% = £62,500 = £250,000 @ 25%).

 

However, the 19% rate does not apply to close investment-holding companies. 

 

For close investment-holding companies and companies with over £250,000 of profits, the rate of corporation tax is 25%.

 

A close investment-holding company is defined in a negative way. Effectively, it is a close company that does not exist wholly or mainly for trading on a commercial basis or investing in land which is (or is intended to be) let commercially (CTA 2010 s 34). And, subject to certain exceptions, a close company is, broadly, a company which is under the control of:

 

·       five or fewer participators (a participator is any person having a share or interest in the capital or income of the company), or

·       any number of participators if those participators are directors, or

more than half the assets of which would be distributed to five or fewer participators, or to participators who are directors, in the event of the winding up of the company.

 

So, the 19% rate can apply to a property letting company with profits of up to £50,000. 

*The special rate for unit trusts and OEICs is based on the basic rate of income tax, which is currently 20%.

 

Marginal relief

 

From 1 April 2023, for profits falling between £50,000 and £250,000, marginal relief applies, which will result in the profits falling between these two profit levels, in effect, being taxed at an effective rate of 26.5% in Financial Year 2023 (the year starting 1 April 2023), Financial Year 2024 (the year starting 1 April 2024) and Financial Year 2025 (the year starting 1 April 2025). 

 

So, the net effect of these provisions is to impose a higher rate of tax on profits in excess of £50,000 and up to £250,000. This, in effect, is a method of bringing the average rate on all profits up from 19% to 25%. 

 

There is also a formula for calculating tax where profits fall in the “marginal relief band”, which is to apply the main rate of 25% with a reduction calculated by reference to the amount by which the actual profits fall short of £250,000.

 

Example:

 

Financial Year 2025

Full rate of tax - 25%

Marginal relief fraction = 1/200

If a company has chargeable profits of £200,000 (including capital gains of £100,000):

 

£200,000 x 25% =	£50,000
Less: 1/200 x (£250,000 - £200,000) =	£750
Liability	£49,250

 

If the profits of the company were exactly £50,000, the tax at 19% would be £9,500.

The effective amount of additional tax on the additional £150,000 (i.e. up to £200,000 total profit) is thus £39,750, meaning that the marginal rate of tax on profits in excess of £150,000 is 26.5%. The average rate on the £200,000 profits is 24.625% calculated as follows:

 

£50,000		@ 19%	= £9,500
£150,000		@ 26.5%	= £39,750
Total tax			_______    £49,250
Total profit	£200,000
Average =	£(49,250/200,000)		= 24.625%

 

Note that the upper and lower limits need to be reduced proportionately if an accounting period is less than 12 months; and divided by the total number of associated companies.

 

For example:

 

·       A company with a six-month accounting period will have a lower limit of £25,000 and an upper limit of £125,000.

·       A company with three associated companies will have a lower limit of only £12,500 (£50,000 divided by four) and an upper limit of £62,500 (£250,000 divided by four).

Identifying the number of associated companies can therefore be key to ensuring that a company applies the correct corporation tax rate. As this can be complex, the Association of Taxation Technicians (ATT) recently produced guidance and FAQs covering this and other issues, which should be useful background reading for anyone dealing with company clients and wanting a better understanding. You can read the full guidance here.

 

Corporation tax on chargeable gains

 

If a company sells or disposes of certain chargeable assets, such as shares, a business premises, or buy-to-let properties, it will need to pay corporation tax at the above rates on any chargeable gains, i.e. on gains after available reliefs and allowances. 

 

When working out the chargeable gain, the company can use Indexation Allowance Rates to reflect the increase in value of the asset between the time it was acquired and 31 December 2017. From 1 January 2018 Indexation Allowance is frozen. Where assets acquired before 1 January 2018 are disposed of on or after that date, the Indexation Allowance will be calculated using the Retail Prices Index (RPI), or factor, for December 2017, irrespective of the date of disposal of the asset.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT PLANNING

 

July inflation numbers

(AF4, FA7, LP2, RO2)

 

The UK CPI inflation rate for July 2025, which was 3.8%, up 0.2% on June

 

Source: ONS

 

CPI inflation for July rose by 0.2% over the previous month to 3.8%. That was 0.1% above market expectations and keeps inflation at its highest level since January 2024. In its August Monetary Policy Summary the Bank of England said “CPI inflation is forecast to increase slightly further to peak at 4.0% in September”.

 

The UK CPI reading was up 0.1% between June and July, which compares with a 0.2% fall in the corresponding period of 2024. The CPI/RPI gap widened by 0.2% to 1.0% with the RPI annual rate rising by 0.4% (to 4.8%). Over the month, the RPI index rose 0.4%.

 

The Office for National Statistics (ONS)’s favoured CPIH index rose by 0.1% to an annual 4.2%, again reducing its historically high margin above the CPI. As we have regularly said in recent months, a large part of that excess is due to the owner occupiers’ housing (OOH) category, which has a 17.1% weighting in the CPIH but is absent from the CPI. The OOH inflation rate dropped 0.9% to 5.5%, 2.5% off its peak January 2025 level and back to the levels seen in late 2024 and early 2024. 

 

The ONS attributed the increased CPIH inflation to:

 

 

Main upward drivers

 

Transport. Overall prices in the transport division rose by 3.2% in the 12 months to July 2025, up from 1.7% in the 12 months to June. On a monthly basis, prices rose by 2.2% in July 2025, compared with a rise of 0.7% a year ago.

 

The rise in the annual rate reflected a large upward effect from airfares which increased by 30.2% between June and July 2025, compared with a rise of 13.3% between the same months in 2024. The monthly rise in July 2025 is the largest July increase since the ONS collection of airfares changed from quarterly to monthly in 2001 and was probably influenced by the timing of school summer holidays. Returning European flights were during the school term in 2024, whereas returning European flights were during the school holidays in 2025 which, to quote an understating ONS, “may have made these flights more expensive”.

 

The rise in the annual rate also reflected a large upward effect from motor fuels. Although both petrol and diesel are cheaper than a year ago, between June and July 2025 prices rose, whereas in 2024 they fell.

 

Restaurants and hotels. Prices in this division saw an overall rise of 3.4% in the 12 months to July 2025, up from 2.6% in the 12 months to June. On a monthly basis, prices rose by 0.4% in July 2025, compared with a fall of 0.4% a year ago.

 

The largest upward effect came from accommodation services, specifically from overnight hotel stays booked the night before. There were smaller upward effects from restaurants and cafes, and from canteens.

 

Food and non-alcoholic beverages. The 12-month inflation rate for food and non-alcoholic beverages was 4.9% in July 2025, the fourth consecutive increase in the rate. It remains at the highest recorded since February 2024, but is well below the peak of early 2023. On a monthly basis, sector prices rose by 0.4%, compared with little change a year ago.

 

Main downward driver 

 

Housing and household services. The 12-month inflation rate for housing and household services was 6.2% in July 2025, down from 6.7% in June. On a monthly basis, prices fell by 0.4% in July 2025, compared with a rise of 0.1% a year ago. 

 

The easing in the 12-month rate between June and July 2025 principally reflected a downward effect from OOH costs. There was also a downward effect from rents, which rose by 4.5% in the 12 months to July 2025, compared with a rise of 5.8% in June 2025. This was the lowest annual growth for rents since October 2022. On a monthly basis, rents rose by 0.4% in July 2025, compared with a rise of 1.7% a year ago.

 

A counteracting upward effect came from electricity, where prices rose by 8.0% in the 12 months to July 2025 compared with a rise of 4.5% in June 2025. Monthly electricity prices fell by 3.8% compared with a fall of 6.8% a year ago. The changes were driven by the new Ofgem price cap and are a reminder of how they build a lag into the UK CPI compared to CPI measures elsewhere.

Five of the twelve broad CPI divisions saw annual inflation increase, while six fell and one remained unchanged. The categories with highest annual inflation rate were led by Education (7.5%), Housing, water, electricity, gas and other fuels (7.4%) and Communication (6.1%). 

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) rose 0.1% to 3.8%. Goods inflation rose 0.3% to 2.7%, while services inflation, a focus for the Bank of England, was up 0.3% at 5.0%. 

 

The ONS has identified problems in the calculation of its Producer Price Inflation indices and, in June, issued a statement that publication of the data would be “paused” for the time being. This remains the case.

 

Comment

 

The Bank of England’s next interest rate decision is on 18 September, the day after the ONS is due to publish the August inflation numbers. After the 0.25% cut this month and the latest signs of sticky inflation, the next rate cut is unlikely to be in September and may now be on hold until 2026.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PENSIONS

 

 

Planning and preparing for later life - DWP research

(AF8, FA2, JO5, RO4)

 

The Department for Work and Pensions (DWP) commissioned a survey to provide up to date information on people’s attitudes and behaviours around planning for retirement.

This is a nationally representative survey of adults aged 40 to 75 in Great Britain.  The 2024 survey, which collected data from 4,036 online, is the second in the survey series, following on from the first survey conducted in 2020/21 and published in 2022. The new survey provides updated evidence on how people prepare for retirement, which the DWP says will be useful to inform future policy developments and reflect on the impact of changes to economic circumstances and pensions policy since the first wave of data collection in 2020/21.

 

The survey had four main objectives:

 

• To understand attitudes and behaviours around pension saving and planning for later life;
• To provide evidence to support policy development around income adequacy in retirement;
• To gather evidence on attitudes and knowledge around the State Pension system;
• To gather evidence on the value ‘consumers’ place on DWP products, policies and services – published in a separate report on ‘willingness to pay’.

 

This survey provides evidence on how older adults are experiencing recent changes, such as increased cost-of-living pressures and the impact of COVID-19, and how such changes have impacted their attitudes towards, and planning for, work and retirement in later life.

 

Key findings

 

The later life landscape:

 

• 60% of people aged 40 to 75 in paid work said they wanted to work less as they approached retirement. When asked what would help them keep working longer, 46% of people who had not yet retired from paid work mentioned working fewer hours or being able to take more holidays.
• 75% of people aged 40 to 75 had a private pension. People on lower incomes, renters and with a long-term limiting health condition were less likely to have a private pension. 54% of people without a pension mentioned not being able to afford it as a reason for not having a pension.
• 38% of 40-to-75-year-olds had no savings, while a further two in ten (20%) had savings of under £15,000. 78% of social renters and 66% of private renters reported having no savings, compared with 17% of people who owned their home outright.

 

Expectations for retirement:

 

• Around two-thirds (65%) of people below State Pension age said the amount of State Pension they receive would be very important or important in their decision on when to retire.
• The median ideal retirement age for 40-to-75-year-olds who had not yet retired was 60. Their median expected retirement age was 66.
• 44% of people expected to retire before their State Pension age. Working beyond State Pension age was more common among the self-employed, people without a private pension, people on low incomes and renters.

 

Planning for retirement:

 

• People were most likely to say they started saving for their retirement in their 20s or 30s with 59% having done so. People started actively planning for their retirement at a later age. 45% of people who were semi-retired and 40% of people who were fully retired started planning in their 50s, with only 22% of semi-retired people (21% fully retired) starting earlier.
• How confident people felt making decisions about pensions varied. The mean confidence score on a zero to ten scale was 5.1. Nearly half (46%) of 40-to-75-year-olds rated their confidence between six and ten on the scale but 13% rated their confidence as zero. People with high financial literacy, who had used regulated advice or guidance in the last 12 months and with a private pension felt more confident making decisions about pensions.
• 24% of private pension holders aged 40 to 75 said they found it fairly or very difficult to keep track of their pension. The Government is developing a pensions dashboard to help people keep track of their pension(s). Most people aged 40 to 75 said they would be very (50%) or fairly likely (31%) to use a pensions dashboard.

 

Income adequacy in retirement:

 

• People aged 40 to 75 were less confident that they would be able to achieve the lifestyle they wanted in retirement in 2024 compared with 2020/21. When asked to rate their confidence on a scale from zero to ten the mean confidence score in 2024 was 4.7, compared with 5.8 in 2020/21.
• 41% of people aged 40 to 75 said they ’had no idea’ how much income they would need in retirement. This figure was higher among younger age groups and the less financially secure, that is those on lower incomes and renters compared with owner occupiers.
• People varied in how reliant they expected to be on their partner’s income in retirement. On average, women rated their level of reliance on a partner (5.3 on a zero – ten scale) higher than men did (3.0 on a zero – ten scale).

 

Pension decision making:

 

• 53% of people aged 40 to 75 wanted their pension to provide them with a guaranteed income for life. This compares with 31% who wanted a flexible income and 12% who wanted a flexible income up to a certain age and then a guaranteed income thereafter. Younger age groups and people with smaller pension savings were the most likely to want a guaranteed income for life.
• The majority (77%) of defined contribution (DC) pension holders yet to access their pension did not have a clear plan for how to do this. This includes 56% who knew they had to make a choice but did not have a clear plan, and 21% who were not aware they had to make a choice. Only 22% had a clear plan.
• People aged 55 and over who had accessed their DC pension since 2015 were generally confident that they had made the right choice to meet their retirement goals. Asked to rate their confidence on a scale from zero to ten, the mean score was 7.3.

 

Willingness to pay:

 

• The survey included a new module to understand the value people place on – or the average ‘willingness to pay’ for - products and services to aid retirement planning and decision-making.
• The survey gathered insights on a range of guidance and information services such as simple annual benefit statements, which 92% of 40-to-75-year-olds thought should continue to be provided. The mean amount that the respondents would be willing to pay annually for a simple annual benefit statement was £6.60.
• The survey also asked respondents about their willingness to pay for new default policies the Government are currently developing. For example, 73% of 40-to-75-year-olds (74% of private pension holders) thought that automatic consolidation of small pension pots should be offered. The mean amount that people said they would be willing to pay, each time pots were consolidated, was £8.80.

 

You can read the full collection of information here.

 

 

FCA: Life insurers’ pension transfer process

(AF8, FA2, JO5, RO4)

 

The FCA has published findings from its multi-firm review of life insurers’ pension transfer process, Life insurers’ pension transfer process – review. The FCA requested data from 18 life insurers, representing around 80% of the individual personal pensions held by life insurers. It reviewed the average time firms took to complete a pension transfer, how they monitored and delivered their transfer process, and the challenges they faced in achieving good customer outcomes. The FCA found that firms are well-intentioned and seek to ensure consumers receive good outcomes when transferring their pensions. Ceding schemes made most transfer payments within a suitable time of receiving the transfer request, with more than three-quarters completing all transfer requests within an average of 20 days. However, many firms face some challenges, particularly when deciding how to apply extra checks to protect customers and when responding to increased demand. The FCA sets out its expectations, including under the consumer duty, on issues relating to firms' pension transfer processes, for example:

 

• Unreasonable barriers to pension transfers, such as "sludge" practices that create barriers to customers changing products.
• Unnecessary delays in the transfer process, which can have financial consequences for customers and negatively impact their confidence in the industry and their ability to manage their retirement planning.
• Necessary delays to transfers, for example when firms carry out additional steps and checks to protect consumers from scams, or flag valuable benefits that customers would give up if they transferred their pension. The FCA notes that firms often direct a customer to take guidance or advice before making a final decision in these cases.
• Pension fraud and scams. The FCA expects firms to apply relevant regulations to support good outcomes and to be able to distinguish between reducing potential harm and delivering good consumer outcomes. They should also be alert to potential indicators of customer vulnerability.

 

The FCA notes that the launch of pensions dashboards will make it easier for consumers to track their pensions and firms should be prepared for a potentially higher demand to consolidate pension pots.

 

The FCA will follow up with firms that had slower transfer process times. It plans to publish, in due course, its feedback and any consultation proposals following its December 2024 discussion paper (DP24/3), which considered how best to ensure consumers make informed choices about whether to transfer.

 

 

State Pension Age review – call for evidence

(AF8, FA2, JO5, RO4)

 

As reported in July 2025, the Government has launched the third review of State Pension age (SPA). The regular review of SPA is a requirement of the Pensions Act 2014. The second review concluded in 2023.

 

The SPA work will have two elements, one of which is an independent report by Dr Suzy Morrissey, who is the Deputy Director of the Pensions Policy Institute and former advisor for the New Zealand Retirement Commission. The report’s terms of reference require it to consider:

 

·       the merits of linking State Pension age to life expectancy, including on fairness between generations

 

·       the role of State Pension age in managing the long-term sustainability of the State Pension

 

·       the international experience of automatic adjustment mechanisms for making decisions about State Pension age.

 

 

The call for evidence seeks views and evidence on these areas and asks questions under 4 headings

 

• Life Expectancy – the advantages and disadvantages of linking SPA to life expectancy and the impact on intergenerational fairness

 

• Sustainability – the role of SPA in managing the costs of the State Pension in the longer term

 

• Automatic Adjustment Mechanisms – advantages and disadvantages of using automatic adjustment factors to adjust SPA and what factors could be used.

 

• Factors for setting SPA – views on the most important factors for setting SPA.

 

The closing date for responses is 24 October 2025.