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Technical news update 12/02/2019

Technical Article

Publication date:

12 February 2019

Last updated:

23 September 2019


Technical Connection

News update for 24 January to 6 February 2019.

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Spring statement announced

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8) 

The Spring Statement date has been announced as Wednesday 13 March. 

This Spring Statement date falls before Britain’s withdrawal from the EU - 29 March (at least at the time of writing!). 

Philip Hammond has announced that the Government will use this Spring Statement to respond to the forecast from the Office for Budget Responsibility (OBR). 

Following the Chancellor’s announcement at Autumn Statement 2016, there will now only be one major fiscal event each year, in the Autumn. 

However, the contents of this year’s Spring Statement could well be influenced by developments in relation to Britain’s withdrawal from the EU. 

Source: HM Treasury News story: Spring Statement 2019 date confirmed 29/01/19

The loss of child benefit

(AF1, RO3) 

We have commented in the past on the problems that have been created by the High Income Child Benefit Charge (HICBC). Now, another Child Benefit (CB) problem has entered the headlines. 

Last year the Chair of the House of Commons Treasury Select Committee (TSC), Nicky Morgan, wrote several letters to the DWP and HMRC about CB claims and the knock-on effect of the HICBC. One particular concern that arose from some detailed HICBC statistics from HMRC was the situation where the working parent of a couple registered to receive CB rather than their non-working partner. 

In that situation, the non-working parent does not receive any National Insurance Credits and may therefore lose entitlement to future State Pension. While NI credits can be transferred between parents of children under the age of 12 using HMRC form CF411A, backdating is effectively limited to a single tax year. The TSC asked for details of how many non-working parents were potentially exposed to losing NI credits. 

Unfortunately, HMRC’s CB data does not include information on both parents, only the actual claimant. This means it was not possible for HMRC to answer the TSC’s question directly. However, it was able to use the DWP’s annual Family Resources Survey covering over 19,000 UK households to arrive at an estimate that "around 3%" of CB claiming households could be caught in the NI credit trap. Although HMRC did not state the numbers affected in its letter, it did say that there are 7.9 million CB claimants (including HICBC opt outs), suggesting 200,000+ may be at risk of losing entitlement. 

It is probably no coincidence that on the same day that HMRC replied to the TSC it published an updated fact sheet on adult childcare credits. 

The TSC said in response that “Now we have an idea of the scale of this problem, the Government needs to pull its finger out and make sure people are aware of the issue and know how to put it right.” There is no argument with that. 

Source: TSC statement 23/01/19

Uncertainty over the tax treatment of offshore income gains complicates tax return

(AF1, JO2, RO3)

New rules for offshore trusts created by non-UK domiciled settlors were introduced from April 2017, by Finance (No. 2) Act 2017 and Finance Act 2018. The rules contain anti-avoidance provisions but also protections for trusts created prior to the settlor becoming deemed UK domiciled. However, an anomaly in the legislation seemed to mean that offshore income gains would be excluded from these protections and would therefore be taxed on UK resident, non-domiciled settlors, on an arising basis once deemed domiciled status is acquired.

However, an alternative view, that offshore income gains do in fact come within the protections has now been put forward for consideration by HMRC. As HMRC has not yet published its response to the submission, those affected may be wondering how to complete their 2017/18 tax returns! To assist, the Chartered Institute of Taxation (CIOT) has published the summary technical analysis (ie. as to why the protections should apply to offshore income gains) for consideration by those advising affected settlors who have still to complete their 2017/18 returns. 

The analysis, which can be found here, suggests that offshore income gains are, in fact, relevant foreign income due to regulation 18(3) charging them to tax under Chapter 8 Part 5 of ITTOIA 2005. 

Advised clients now have the following options as regards their 2017/18 returns: 

  • Delay submission until HMRC has considered the analysis and published a response; 
  • File the return on the basis of what is considered by their adviser to be the better technical position, having studied the analysis; 
  • File the return on the basis that HMRC is likely to be expecting any realised offshore income gains to be disclosed, given that any alternative analysis has not yet been adopted. 

The safest approach may be to assume that the trust protections do not apply and to file the return on this basis. The client will then have a year to 31 January 2020 to file an amended return if the alternative analysis is accepted by HMRC.

For returns already submitted consideration can be given to amending them (taking into account the issues raised above). 

Source: CIOT News: Deemed domicile trust protections and Offshore Income Gains - FURTHER UPDATE WHICH MAY AFFECT 2017/18 TAX RETURNS – dated 18/01/18

Non-domiciliaries must act quickly to take advantage of the mixed funds cleansing opportunity

(AF1, RO3)

Following the recent wealth of changes to the tax treatment of non-UK domiciliaries, it is now reasonably widely understood that non-UK domiciled individuals living in the UK may elect to be taxed on the remittance basis of taxation on their overseas income and capital gains until they have been UK tax resident for 15 out of the last 20 tax years. In broad terms, this means that they will only be subject to UK taxes on income and gains that are remitted, or brought into, the UK. Depending on how long they have been resident, a remittance basis charge (RBC) may need to be paid to secure remittance basis treatment.

Generally speaking, if 'clean capital' is brought into the UK by a remittance basis user, then no tax liability should arise. Clean capital is broadly capital that has already suffered or is outside the scope of UK tax - such as money received by way of outright gift or inheritance or foreign income and gains that arose before the taxpayer became UK resident. However, if post-residence offshore income and gains are brought into the UK (other than for the purpose of paying the RBC), the remittance basis user will usually find themselves with an income tax and/or capital gains tax liability. 

Where clean capital has been mixed with untaxed, post-residence foreign income and gains, so that it is difficult to identify what is being remitted, onerous ordering rules will apply. These rules deem the remittance to be sourced from the most unfavourable component of the fund so that, in practice, any income in the mixed fund is treated as remitted first (at income tax rates of up to 45%), followed by capital gains (at rates of up to 28%), and finally clean capital. Moreover, when a non-domiciliary  makes an overseas transfer from a mixed fund, a pro-rata portion of each category of income/gain/capital within the fund is deemed to have been transferred. It is not possible to access the clean capital alone. 

However, a valuable "cleansing" opportunity currently remains available to all non-domiciliaries with a foreign domicile of origin who have used the remittance basis of taxation before 6 April 2017. The temporary rule, which was introduced alongside the recent reforms, allows for an overseas transfer to be made which separates the constituent parts of a mixed fund into their own respective bank accounts. This would enable the future remittance of clean capital - currently comprised in a mixed fund - to the UK without a tax charge arising. 

The opportunity only applies to mixed funds in the form of bank accounts or similar, not to assets derived from or representing mixed funds (although assets can be sold and the cash deposited in a bank account in order for segregation to be achieved); and is only available where the individual has sufficiently good records to determine the constituent parts.

It is most important to note that this window of opportunity is only open until 5 April 2019.

The detailed mixed fund analysis – and subsequent allocation to the appropriate new accounts - can take time to prepare and analyse; and so, with the deadline fast approaching, remittance basis using clients should be urged to seek further advice as soon as possible - even if they are not currently planning to make remittances to the UK. The opportunity will disappear after 5 April 2019 and so, by undertaking cleansing now, it will be possible to protect their position in the future if circumstances change. 

It should be noted that the remittance basis does not apply to chargeable event gains on offshore bonds. These chargeable event gains will, in general, be taxed on the policyholder if UK resident regardless of domicile status. 

Source: Update from the CIOT on the HMRC guidance on Cleansing Mixed Funds


Growth in UK dividend payments was over 5% in 2018

(AF4, FA7, LP2, RO2)

Link Asset Services (formerly Capita) has published its latest quarterly dividend monitor, showing a respectable growth for UK dividends over 2018. The figures confirm the picture contained in earlier data and underline the influence of sterling’s post-referendum performance on the overall numbers: 

  • In 2018, total dividend payouts were 5.1% higher (£4.8bn) than in 2017 at £99.8bn. 
  • The fourth quarter of 2018 saw UK dividends jump by 15.6% year-on-year to £17.3bn, mainly due to a switch from half yearly to quarterly payments from British American Tobacco, one of the top five dividend payers. 
  • Special dividends accounted for £3.9bn of payouts in 2018, a fall of two fifths on 2017. The decline was primarily due to the big one-off dividend that National Grid paid in 2017 that was not repeated last year. 
  • Underlying dividend growth (excluding special dividends) was 8.7%, a deceleration from 10.4% in 2017. 
  • Exchange-rate effects were complex in 2018. 40% of UK dividends are declared in dollars, so the sterling total moves up and down with the £/$ exchange rate. The pound was stronger against the dollar in the first half of the year compared to the same period in 2017. This created an exchange-rate driven hit that was partially reversed in the second half of 2018 as sterling dropped below its comparable dollar exchange rate in H2 2017. 
  • The Banking and Financial industry accounted for the largest share of dividend payouts, as it has since 2012, with dividend growth in 2018 of 7.5%. 
  • A major boost again came from mining companies, with an increase of 66% from the mining sector. This was a continuation of the recovery from 2016, when miners' payouts were halved. 
  • As in 2017, 13 out of 19 sectors increased pay-outs in 2018, while the remainder saw a fall. The largest drop (44%) was in the Utilities sector, once again due to the distortion caused by National Grid’s 2017 special dividend. 
  • Payouts from the top 100 companies rose 9.3% year-on-year on an underlying basis, although total payments grew only 4.6% because of much lower special dividends. The top 100 accounted for 86.0% of the UK’s total dividend payments. 
  • The more UK-focused Mid 250 registered a 1.4% underlying dividend increase, hurt by the slowing domestic economy. Total payouts accounted for only 11.1% of all payouts. 
  • The concentration of dividend payouts in a handful of companies remains a serious issue, although it reduced marginally. The top five payers (Shell, HSBC, BP, British American Tobacco and GlaxoSmithKline) accounted for 34% of total payments. The next 10 companies accounted for 24%, meaning that just 15 companies were responsible for 58% of all UK dividends in 2018 (60% in 2017). 
  • Link Asset Services expects 2019 to herald less buoyant dividend growth, with an increase of 5.3% on an underlying basis, helped by a 1.7% currency boost. Headline growth (including special dividends) is forecast to be 4.2%. 

Link Asset Services highlights the fact that at the end of 2018 the UK market dividend yield was 4.8%, compared with a 30-year average of 3.5% (based on Barclays’ 2018 Equity Gilt Study). The same Barclays statistics show that the last time a year-end gross dividend yield was higher was 1990, although even that comparison is questionable given the different tax treatment of dividends back then. 

Source:  Link Asset Services January 2019


TPR news round up

(AF3, FA2, JO5, RO4, RO8) 

Scam victims lose more than £1m each to fraudsters Intelligence gathered by members of the multi-agency Project Bloom group, which was set up to tackle pension scams, has found some people who had managed to put away more than £1 million have lost their retirement funds to criminals. 

New Action Fraud data reveals that two people have reported that they have lost the seven-figure sums. However, as it is believed that the majority of scam victims never contact the authorities, this total may only be a fraction of the total number of people who have handed over such large pension pots. 

On average, victims of pension scams lost £91,000 each to fraudsters in 2017. They reported receiving cold-calls, offers of free pension reviews and promises that they would get high rates of return - all of which are key warning signs of scams. 

TPR action leads to NOW: Pensions overhauling its administration system 

TPR gave the trustee and trust manager of NOW: Pensions a deadline to fix serious and persistent administrative failings with the pension scheme that had led to problems with the collection and investment of contributions. In April 2016, the pension contributions of almost one in three of the master trust's members – an estimated £18 million affecting over 265,000 people – had not been collected, and there were ongoing problems both with the collection of contributions and with ensuring the correct amounts were invested for members.

TPR directed the trustee and the trust manager (NOW: Pensions Ltd, or NPL) to resolve these issues by serving them with an improvement notice and third party notice respectively.

As a result, NPL has worked closely with employers to collect outstanding contributions. It has moved all of its members onto a purpose-built platform, improved the member data it holds and has rebuilt the data records of more than 350,000 of its members. All of the contributions due to these members have now been collected and invested.

HMRC pension schemes newsletter 106

(AF3, FA2, JO5, RO4, RO8)

 This edition covers the following: 

  • Pension flexibility statistics
  • Lifetime allowance for 2019 to 2020
  • Reporting non-taxable death benefits
  • Changes to HMRC email addresses
  • Guaranteed Minimum Pension (GMP)
  • Relief at source – January 2019 notification of residency status reports
  • Relief at source – annual return of information declaration
  • Change of name for the Manage and Register Pension Schemes service
  • Master Trusts


Issues of particular interest

Pension Flexible Statistics

From 1 October 2018 to 31 December 2018 HMRC processed the following number of forms: 

  • P55 = 7,770
  • P53Z = 4,537
  • P50Z = 1,685 

Total value repaid: £30,242,426


Reporting non-taxable death benefits through RTI 

HMRC have confirmed that previous guidance given in newsletter 104 and 105 was incorrect. 

The correct information should have said that when reporting death benefits that are entirely non-taxable, the starting date field should be blank when the scheme administrator submits their FPS. For these payments the annual amount should be zero. 

Those that used the previous guidance would have received an error. If you have any questions then please contact and put 'reporting non-taxable death benefits' in the subject line of your email.


Changes to HMRC email addresses 

Email addresses previously ending in, will be moving to For a while, after the change has been made, old email addresses will redirect.


Master Trust 

A reminder that the application window closes on 31 March 2019 and that those who don’t register by 31 March 2019 will by law have to cease and wind up the scheme and TPR may also impose financial penalties.

GMP equalisation guidance

(AF3, FA2, JO5, RO4, RO8) 

HMRC have republished their guidance on conversion and equalisation of GMPs. 

The legislative requirements for GMPs can give rise to a difference in treatment between men and women which schemes are required to address in accordance with their equal treatment obligations. The difference is due to the: 

  • different ages at which men and women are entitled to receive their GMPs
  • different rates at which the GMP accrues for men and women
  • fact that schemes often provided for different rates of revaluation and or indexation on the part of the pension underpinned by the GMP and benefits above the GMP 

Conversion can be used as part of a process by which schemes can remove any inequality between men and women resulting from the GMP rules. 

They suggest/remind of one method of equalisation which was first published in 2016 in the draft Occupational Pension Schemes and Social Security Contracted out and Graduated Retirement Benefit regulations. 

The proposed method involves a one-off calculation and actuarial comparison of the benefits a man and woman would have, with the greater of the two converted into an ordinary scheme benefit under sections 24A to 24H of the Pension Schemes Act 1993. 

Ultimately, schemes may choose this methodology or another. The onus lies with each scheme to take their own legal advice when considering and undertaking equalisation.

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.