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My PFS - Technical news - 07/07/2015

Publication date:

07 July 2015

Last updated:

22 September 2017


Technical Connection

Personal Finance Society news update from 17 June 2015 -  30 June 2015 on taxation, retirement planning, and investments.

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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 listed.

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 peer-to-peer loans.

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 standards.
  • 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 corporate behaviour.

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 cut

(AF1, RO3)

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 above £150,000.

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% rate.

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 management?

(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 donor.

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 delegate:

  • 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 personally)'.

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 investment functions.

Have you renewed your tax credits?

(AF1, RO3)

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 claim.

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 disappointment.

A holographic diary entry held to be a valid will in Scottish Courts

(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 intention

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 £150bn.

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 their manifesto.

Here are some of the rumoured changes which are being considered:

  1. Abolition of the additional rate of tax.
  2. Some further tightening of the rules on the tax privileges that go with "non-domiciled" status.  
  3. Some revaluation of council tax bands.
  4. The introduction of a new £175k nil rate band for the main residence.
  5. 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 Lifetime Allowance.
  6. Removal of salary sacrifice.
  7. Removal of mortgage interest relief on buy-to-let properties.
  8. Capital gains tax rates to be aligned with income tax rates.
  9. A cap on qualifying principal private resident gains.
  10. A reduction in the upper limit for entrepreneurs' relief to £5m.

All just thoughts at the moment but July the 8th could be interesting.

Disclosure of the ultimate beneficial owners of UK companies

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 jurisdictions.

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 company; or
  • 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 from disclosure.

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 replicated.

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 behaviour.


Investment planning

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 the ONS:


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 ago.

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 budget

(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 being anticipated.

Pensioner Bonds

(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 prize.

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 annum".

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 welcome news.



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 April 2016. 

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 charge

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 income

Step 2: How to work out the annual allowance tax charge

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 charge

Add together the reduced net income (from Step 1) and the excess pension savings (from Step 2). The amount of pension saving (from Step 2):

  • 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 charge

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 charge

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 charge

Work out the difference between the higher and basic rate limits.

Step 7: How to work out the annual allowance tax charge

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 charge

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 resolved:

  1. For a "Scottish tax payer" will their annual allowance tax charge be based upon the SRIT or those that apply to the rUK?
  2. 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 following response:

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 periods.

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 benefits.

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 list

(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 to:

  • 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 ill-health grounds.
  • Whether the scheme wishes to appear on the public list of ROPS notifications

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 significant issue.

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. 

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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