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My PFS - Technical news - 04/08/2015

Publication date:

30 July 2015

Last updated:

06 July 2018


Technical Connection

Personal Finance Society news update from 15 July 2015 - 28 July 2015 on taxation, retirement planning, and investments.

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Taxation and trusts

HMRC review of the use of deeds of variation

(AF1, RO3, JO2)

In his last pre-election Budget on 18 March 2015 the Chancellor announced a Government review of what he described as "attempts to avoid inheritance tax through the use of deeds of variation". To this end HMRC launched consultation on 16 July on the use of Deeds of Variation (DoV) for tax purposes to ensure that they are not being abused.

HMRC is asking eight fairly straightforward questions and has said that anybody can respond and all responses will be considered. HMRC admits that it has little information about the uses of DoV, as the executors only need to notify HMRC where a DoV results in an adjustment of inheritance tax due. Although the consultation is referred to as a call for "evidence", no evidence as such is being asked for, merely a survey is being carried out.

HMRC states that the questionnaire has been designed with the aim of understanding what role tax advantages play when a decision is made to vary a will by a DoV.

One of the questions asks: What is the main reason (or reasons) for using a DoV? The choice of answers include the following:

  • To update a will to reflect changes in family circumstances
  • To reduce/increase a tax liability (IHT or CGT)
  • To increase the amount of a charitable legacy
  • To clarify a poorly drafted will

which certainly does not cover all the possible answers to the said question. And what if more people taking part tick the answer about tax liabilities, will this provide actual "evidence" that DoV are used primarily for tax reasons? And if only a minority ticks that question, will this "evidence" be accepted by HMRC and DoV be left alone? Or has the government already decided what is it going to do anyway?

It also asks whether DoV are ever used to support any contrived or artificial arrangements designed purely to reduce a tax liability. One wonders who might answer this in the positive.

The deadline for responses is 7 October after which the "evidence" will be analysed and the government will consider the findings.

Whatever the reason and whether legitimate use of a tool which is specifically provided for in legislation can be construed as tax avoidance or not, the fact is that there is a distinct possibility that the use of these deeds may be curtailed. Of course, similar threats have been made before and nothing has materialised but who knows what the conclusions will be this time round, given the current attitude towards any form of tax planning.

Most advisers will be familiar with the concept of a deed of variation, i.e. a device which, it is often said, allows you to rewrite a will (or intestacy) after someone has died, perhaps to improve the inheritance tax position after death or to "skip a generation".

As mentioned above, deeds of variation have been picked for review as part of the government's drive to counter tax avoidance. It is certainly questionable whether changing a will provision by itself can be considered to be tax avoidance. After all, if the deceased had included equivalent provisions in the will (except, of course, those relating to the severance of a joint tenancy which cannot be via a will) - or had left a valid will, in the case of intestacy - such provisions would never be considered to amount to tax avoidance. Let us hope the review will come to sensible conclusions. Nevertheless, those contemplating using this device should bear the possible changes in mind and may want to consider taking action sooner rather than relying on the two-year limit currently available.

And, of course, the ongoing review should act as a trigger to review, and update if necessary, your own will - and to recommend the same to your clients.

The personal savings allowance - consultation launched

(AF1, AF4, RO2, RO3, CF2, FA7)

In the March 2015 Budget it was announced that the government would introduce a personal savings allowance (PSA) of £1,000 for basic rate taxpayers (and £500 for higher rate taxpayers) on the interest earned on savings from 6 April 2016. The PSA will not apply to additional rate taxpayers.

In addition, from April 2016, banks and building societies will stop automatically deducting 20% income tax on interest earned on non-ISA savings.

The government said that by introducing a personal savings allowance it believed that 95% of people would not have to pay tax on the first £1,000 (£500 for higher rate taxpayers) of interest they earn on their savings. Savings income for these purposes includes interest income, income from certain purchased life annuities, profits from deeply discounted securities, profits under the accrued income scheme and gains from certain life assurance contracts.

In view of these proposed changes, HMRC has now launched an open consultation inviting comments on options for changes to current legislation. The aim of the consultation is to establish which options will best balance: making it as easy as possible for recipients to pay the right amount of tax; reduce risks to the Exchequer if the right amount of tax is not paid; administrative burdens and costs for payers of interest and other amounts; and costs to HMRC of operating and policing the tax system.

The consultation closes on 18 September 2015 and will be of particular interest to financial institutions and other businesses that pay interest or other savings income. However, HMRC also welcomes comments on how recipients of savings income may be affected.

Undoubtedly, the introduction of a PSA is a welcome change and it will be interesting to see the outcome of this consultation in due course.

New consultations on offshore tax evasion

(AF1, RO3)

In the Summer Budget the Chancellor stated that he would be looking to raise a further £7bn from further attacks on aggressive avoidance and evasion of tax. Up to £800m would be made available to HMRC to pursue this target.

In relation to this HM Revenue & Customs is now consulting on a raft of new measures to clamp down on offshore tax evasion.

The tax office has published four consultations, which will run to 8 October, on expanding the Government's evasion strategy.

£26.6bn secured by tax avoidance clampdown

(AF1, RO3)

HMRC's annual accounts for 2014/15 show that £26.6 billion was secured in revenue from tax avoidance and tax evasion. This is nearly £3 billion more than in 2012/13 when it got back around £24 billion.

HMRC said that amongst the most significant tools that it has to tackle avoidance by individuals and companies is through the use of the 'Accelerated Payments' legislation introduced by Finance Act 2014 and the ability to issue 'Follower Notices.'

HMRC generated £768 million through accelerated payment notices over the period after it issued around 10,000 of the notices to investors in disputed tax avoidance schemes. It expects to issue another 64,000 notices on individuals and businesses in schemes that are currently under dispute with the authorities. Essentially, under this legislation anyone who has entered into a tax avoidance scheme and is under investigation is required to pay the disputed tax upfront within 90 days.

In addition, in 2014/15 HMRC issued 379 'follower notices' collecting £170m as a result. 'Follower notices' are aimed at marketed avoidance schemes where HMRC has succeeded in the Courts against one scheme user. Therefore, on issue of a 'follower notice' a tax avoider is urged to pay the disputed tax they owe. Someone who receives a 'follower notice' and does not settle their dispute may be liable to a penalty of up to 50% of the tax and/or National Insurance contributions in dispute.

Over recent years, the government has been extremely committed to clamping down in this area and, as a result, has introduced measures or tightened up existing measures to reduce evasion and aggressive tax avoidance. And, it seems, this area of focus continues…

Personal allowance to be linked to the national minimum wage

(AF1, AF2, RO3, JO3)

In the Summer Budget the government pledged that it would increase the personal allowance to £12,500 from 2020.

It was also announced that when the personal allowance reaches £12,500 it will be increased automatically 'in line with the equivalent of 30 hours at the national minimum wage rate that individuals over 21 are entitled to'.

This announcement effectively changes the basis of indexation for the income tax personal allowance from the Consumer Prices Index (CPI) to linking to an annual equivalent of an individual working 30 hours per week at the national minimum wage (NMW) adult rate when the personal allowance reaches £12,500. By introducing this measure the government is essentially promising that no one working for 30 hours a week on the NMW will pay tax.

This change reflects the government's objective to support and rewards individuals in work. It also provides additional certainty about the level of personal allowances.


Class 3A NICs DWP update

(AF3, CF4, JO5, FA2, RO8, RO4)

The DWP has recently issued an update to individuals who have registered their interest in topping up their State Pension via Class 3A NICs.

The DWP update, issued by e-mail, explains the next steps for individuals who have expressed an interest.

In addition, the e-mail includes the following links:

  • A YouTube video of Alan Dick, Director of the Institute of Financial Planning explaining how State Pension top up works.
  • A link to the DWP's on-line calculator to work out the costs of Class 3A contributions. It is worth noting that although the calculator asks the question whether the calculation is being done for a male or a female, it doesn't make any difference to the quoted cost, but it is there to filter out the difference in SPA between males and females. At the end of this process, it includes details of how to register interest in receiving updates by e-mail. This is done by sending an e-mail to

In addition to the above the e-mail includes brief summary of the options:

  • State Pension top up will be available for a limited period of 18 months from 12 October 2015 to 5 April 2017
  • It offers a one-off opportunity to increase an individual's State Pension income for life, protected against inflation
  • It can provide an additional income of between £1 and £25 per week equating to £52 and £1,300 a year respectively.
  • The one-off contribution needed is based on the individual's age; reducing with age. For example, for a 65 year-old, to get an extra £5 a week of State Pension for life (£260 a year), they would need to pay a lump sum contribution of £4,450, compared to £3,370 if they were aged 75.
  • In most cases, a surviving spouse or civil partner inherit at least half of the State Pension top on the individual's death.

Given the attractive return on capital that is typically double the rate offered for a similar annuity in the open market it is an offer that should seriously be considered by those who will have attained SPA on or before 5 April 2016, if they are income poor cash rich.

Eligibility for carry forward

(AF3, CF4, JO5, FA2, RO8, RO4)

To carry forward unused annual allowance to the current tax year from one or more of the previous three tax years, the individual must have been a member of a registered pension scheme at some point in the earlier tax year.

If the individual was a member of a registered pension scheme but, in one particular tax year, did not have a pension input amount for that year then they can carry forward the full amount of the annual allowance from that year. Equally, if they were not a member of a registered pension scheme at any time during a previous tax year then they will not have unused annual allowance to carry forward from that year.

HMRC makes it clear what constitutes being treated as a "member" includes either an active member, a pensioner member, a deferred member or a pension credit member of a pension scheme. This is based on section 151 FA 2004.

As the requirement is to have been a member of a registered pension scheme specifically at some point in a tax year, it is possible to have an unused annual allowance to carry forward even where there is no pension input amount for that tax year. This is set out in section 228A (4) FA 2004.

For example, in the tax year 2014/15, an individual is a deferred member of a registered pension scheme but has no pension input amount (PIA) for that year in respect of the deferred benefits. If they have no other pension input amount to take into account for that year, the individual would have unused annual allowance of £40,000 for that tax year.

Another example, an individual joins a registered pension scheme for the first time on 1 June 2014 with a first pension input period of 1 June 2014 to 1 June 2015. The first tax year that they will have any PIA is 2015/16 but as the individual was a member of a registered pension scheme in the 2014/15 tax year they will have a deemed unused annual allowance of £40,000 to carry forward from that tax year.

For most individuals being a member of a registered pension scheme at some point during a previous tax year will be the first requirement that must be met in order to determine how much unused annual allowance can then be carried forward from that year.

However some individuals might still be able to carry forward unused annual allowance from a previous tax year despite not being a member of a registered pension scheme at any time during that year. This would occur if, during the previous tax year, the individual was instead a "currently-relieved member" of a "currently-relieved non-UK pension scheme" for any of the previous three tax years.

Other Points

We have been asked in the past about the position in respect of an individual who is in receipt of dependant's benefits from a pension. It is our understanding that for the purposes of carry forward, as a "dependant member", a "nominee member" or a "successor member", does not fall within the definition of "member" set out in section 151, "beneficiaries" will not have any entitlement to carry forward of unused annual allowance in respect of their "beneficiary entitlement, unless they also fell within one of the types of membership defined in section 151.

We understand from HMRC, that the following individuals would fall within the definition of member, as set out in section 151:

  • An individual whose only membership of a registered pension scheme was as a result of pre A-Day contributions or accrual, as this would fall under "deferred member".
  • An individuals whose only membership of a registered pension scheme was due to being in receipt of a pension paid either as a member's lifetime annuity, a member's drawdown pension or a member's scheme pension, as this would fall under the "pensioner member".

HMRC publish Newsletter 70

(AF3, CF4, JO5, FA2, RO8, RO4)

On 21st July, HMRC published Pension Schemes Newsletter 70.

The newsletter covers:

Certificates of residence

HMRC has seen an increase in applications requesting certificate of residence for countries that are subject to tax and therefore don't qualify for a certificate.

A certificate of residence will only be issued for countries that the UK holds a tax treaty with where taxes are liable. A certificate of residence cannot be issued for any country where taxes are the subject of present convention, for example, Portugal and Israel.

Summer Budget

This section looks at the changes as announced by George Osborne, notably,

  • The tapered annual allowance,
  • Protection (Fixed & Individual 2016 details to be published late summer 2015)
  • Tax on lump sum death benefits from 2016
  • Delay of secondary annuity market implementation until 2017
  • Consultation on tax relief (ends 30th September 2015)
  • Pending consultation regarding the use of UEFRBS

Pension flexibility - forms for claiming repayment of tax

Printable versions of the P50Z, P53Z and P55 forms are now available. Scheme members can use these forms to make a repayment claim for overpaid tax on payments taken under the new pension flexibility rules:

  • P50Z - scheme members should only use this form if they have flexibly accessed the whole of their pension pot and have no continuing source of income (other than State Pension)
  • P53Z - scheme members should only use this form if they have flexibly accessed the whole of their pension pot but have a continuing source of income, eg employment or pension
  • P55 - scheme members should only use this form if they have flexibly accessed some of their pension pot, are not taking regular payments and pension body is unable to make any refund.

Contacting Pension scheme services

Reminder to use the Pensions Tax Manual before contacting the Pension Scheme Services first.

Routine updates/changes to Pension Schemes Online

At the end of July 2015 HMRC will be making some changes to Pension Schemes Online. These changes include removing the option for a scheme administrator to add themselves to an unknown scheme online or submit an online return for an unknown scheme.

From 27 July 2015 you will need a Pension Scheme Tax Reference (PSTR) to complete these actions. If you are a scheme administrator but don't have a PSTR you will need to contact HMRC with the SF reference of the unknown scheme and you can do this by calling the Pensions schemes helpline.

Following these changes, scheme administrators will still be able to add themselves as an administrator of a deferred annuity contract using the policy reference number and this will generate a PSTR that they can then use to submit returns. The changes keep this existing functionality for deferred annuity contracts but from 27 July 2015 this will also include retirement annuity contracts.

This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.


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