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My PFS Technical news - 16/03/2018

Publication date:

16 March 2018

Last updated:

31 October 2018

Author(s):

Technical Connection

News update on taxation & trusts, pensions and investment planning, for the period 1 - 14 March 2018.

Taxation and trusts

Investment planning

Pensions

TAXATION AND TRUSTS

A summary of the Spring Statement 2018

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

Chancellor Philip Hammond’s first Spring Statement lasted for just around 30 minutes and, as forecast, contained no new announcements affecting tax or pensions.

The Chancellor had previously announced that there will now only be one major fiscal event in each year, held in the Autumn. However, the government will still be able to start consultations as necessary throughout the year and retains the option to make changes to fiscal policy at the Spring Statement if the economic circumstances require it.

This Spring Statement responded to the updated OBR forecast for the economy and the public finances, included an update on progress made since the Autumn Budget and announced some new consultations, three of which covered:

The government also issued an update paper following its previous consultation around Corporate tax and the digital economy

Copies of the relevant Spring Statement documents are located here:

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How to remove an uncooperative executor

(AF1, JO2, RO3)

The Courts are generally not keen to remove executors as they are reluctant to interfere with a testator’s wishes. This is why they would normally contemplate such a decision (once an application to remove has been made to the Court, of course) only if either the executor has been at fault, or there is otherwise a good reason to remove them.  Section 50 of the Administration of Justice Act 1985 does give the Court a wide discretion in such matters and a decision will be made on the basis of whatever order would be in the best interests of the estate as a whole.

The case of Heath v Heath, which was decided on 17 January 2018, is a good example of how a judge will exercise this discretion.

The facts of the case

Mrs Rachel Heath died in 2017 leaving an estate of about £1.8m including a £1.5m home in London. She had three sons who were the three named executors under her Will. The three were also the only beneficiaries, each receiving an equal share. Two of the sons applied to the Court to have the third one removed as an executor.

The defendant executor had lived with and provided care for his mother for many years, along with two full-time carers. He claimed he should receive a greater share of the estate for the work that he had done for her which had resulted in restricting his earning capacity during that time. He also believed that his mother had in fact made a later Will which left the entire estate to him (although this could not be located).

The claimants sought their brother’s removal as executor on the basis that he had frustrated the administration of the estate by not signing the required paperwork and had not generally cooperated during the course of the estate administration process.

The decision

The Judge did not find that the defendant had acted inappropriately while his mother was alive, nor had he subsequently sought to frustrate the administration of the estate. To put it another way, the defendant was not at fault.

Nevertheless, the Judge ordered that the defendant should be removed as an executor. This was because of the conflict of interest arising from his potential claim. Furthermore, given his belief that there was a later Will, he would be unable to properly carry out the estate administration on the basis of an equal split between the three beneficiaries.

To ensure that the defendant’s interests would not be adversely affected, the claimants were ordered to provide an undertaking that an independent solicitor will replace the defendant.

The same principles apply where there is no valid Will and administrators are appointed under intestacy, although apparently Courts are less reluctant to remove administrators. 

The case in question illustrates how important it is to consider who should be appointed as an executor/executors. It is in fact fairly typical that all the children of the testator will be named as executors.

Bringing a Court action to remove an executor can be expensive - in the above-mentioned case the two brothers who brought the case were ordered to pay their own costs of £25,000. The Judge also warned them that they may have to step aside as executors themselves if further conflicts of interest were to arise.

When discussing a Will with a client the possibility of potential disagreements between the executors, where a number of them are named in the Will, should be raised. An appointment of a professional person, or at least an independent individual, as executor will often help prevent such problems.

HMRC has defeated a taxpayer in the first IR35 ruling since 2011

(AF1, RO3)

The First-tier Tribunal has ruled that a TV personality’s contract was caught by IR35 resulting in a £420,000 income tax and National Insurance bill for her company.

In a recent tax case, Christa Ackroyd Media Limited and the Commissioners for HMRC, the taxpayer lost her appeal against HMRC’s decision that she was caught by IR35. This is the first of what’s expected to be a number of high profile appeals involving television presenters and IR35.

IR35

IR 35 is aimed at identifying individuals who, in the view of HMRC, are avoiding paying tax and National Insurance by supplying their services to clients via a structure, such as their own personal service company, when the individual is acting like and is being treated like an employee of the end client.

Its effect is to severely restrict the tax breaks, ensuring that individuals cannot avoid PAYE by remunerating themselves by way of dividend. If caught by IR35, the individual is required to deduct income tax and National Insurance from any of their company’s income that they haven’t already drawn out as salary. This deemed payment of salary requires a special calculation that allows tax relief for certain expenses.

Normally, tax relief is available for travel and subsistence expenses for travel to and from a worker’s home to a temporary workplace, but not for ordinary commuting, eg from home to a permanent workplace. However, since 6 April 2016, the cost of travel from home to and from all workplaces is no longer an allowable deduction for a worker who is caught by IR35, or who is otherwise under the supervision, direction or control of the client. This is because each of their assignments is considered to be a separate employment, ie. a permanent workplace.

Since 6 April 2017, public authorities are responsible for deciding if IR35 applies to a person providing services through their own intermediary. The person providing the services through their own intermediary will need to provide information to the public authority to help them make their decision. If the rules apply, the public authority, agency or other third party who is responsible for paying the worker’s intermediary must deduct income tax and National Insurance.

This legislation, known as the off-payroll working rules, hasn’t been extended to apply to workers in the private sector. The person providing services through their own intermediary remains responsible for deciding if the IR35 rules apply for work in the private sector.

The recent tax case

The presenter was engaged through her personal service company by the BBC on a seven-year contract to provide her services up to 225 days per year.

The Tribunal accepted the presenter’s evidence that it was the BBC who suggested that she should work using a personal service company.

After a three-month period spent off air the BBC reported, in 2013, that the presenter had been sacked over an alleged contract breach. The following section of a letter from the BBC to the presenter is reproduced in the case notes:

‘… [as] HMRC has now issued a formal demand against you for unpaid tax which you are unable to pay and propose to challenge, the BBC has decided that it is in both your interests and the BBC’s that you be withdrawn from your presenting duties...’

The presenter argued that her status for the purposes of the IR35 legislation was that of a self-employed contractor. However, HMRC decided that she was engaged under a contract of service rather than a contract for services, which meant that she should be treated as an employee of the BBC. And the First-tier Tribunal agreed with HMRC, concluding:

“...a hypothetical contract of that length for at least 225 days per year and terminable only for a material breach points towards a contract of employment. The existence of a 7 year contract meant that Ms Ackroyd’s work at the BBC was pursuant to a highly stable, regular and continuous arrangement. It involved a high degree of continuity rather than a succession of short term engagements. That is a pointer towards an employment contract.”

And that they did not consider that the former presenter “could fairly be described as being in business on her own account. She was economically dependent on the hypothetical contract with the BBC which took up most if not all of her working time.”

The Tribunal added “...the BBC through the editor would have control over content given its editorial responsibility.”

Another key indicator that the former presenter was being treated like an employee of the end client, the BBC, was that they prohibited her personal service company from using a substitute for her.
The Tribunal ruled that ‘...the most significant factors in the present case include the fact that the BBC could control what work Ms Ackroyd did pursuant to the hypothetical contract. It was a 7-year contract for what was effectively a full-time job. Standing back and making an overall qualitative assessment of the circumstances we consider that Ms Ackroyd was an employee under the hypothetical contract.’
The result of this Tribunal case doesn’t set a legal precedent. However it further highlights, along with the off-payroll working rules mentioned above, HMRC’s determination to enforce a piece of legislation that it has regularly struggled to implement in a meaningful way since its inception in 1999. If successful, this could have a major impact on contractors, particularly if the off-payroll working rules are ever extended to apply to workers in the private sector.

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The taxation of self-funded work-related training

(AF1, AF2, JO3, RO3)

As expected the recent Spring Statement brought no surprises in relation to tax and pensions. However, a few consultations were announced. One of these is a consultation on extending tax relief for training by employees and the self-employed, particularly for those who want or need to upskill or retrain for a change of career.
The current rules mean employers can deduct the costs of work-related training of their employees for tax purposes. Employees are not taxed on the benefit if their employer pays for, or reimburses them for, the cost of work-related training and certain associated costs. Tax relief is also available in certain circumstances when an employer funds retraining to help an employee find another job with a new employer or set up as self-employed.

However, if an employee pays for work-related training which is not reimbursed by their employer, the employee cannot currently receive tax relief other than in limited circumstances when the training is an intrinsic contractual duty of their existing employment.

In practice, this means no deduction is normally allowed for non-reimbursed expenses incurred by an employee for training, even where the subject of the training is closely relevant to the nature of the employment and where training forms part of a Continuing Professional Development programme.

The self-employed can deduct the costs of training incurred wholly and exclusively for their business where it maintains or updates existing skills but not when it introduces new skills.

This means that a training course to update existing expertise, knowledge or skills will normally be deductible, but expenditure on a training course for a business owner that is intended to provide new expertise, knowledge or skills brings into existence an intangible asset, which will be of a capital nature and does not qualify for tax relief.

The government wants the new extended relief to be simple to understand and administer, but not allow misuse on recreational activities. It has an open mind on the most appropriate approach to achieving these objectives, whether that is tax relief, tax credits or other alternative approaches.

This consultation will be of interest to employees, employers, the self-employed and tax and other representative bodies.

It will run until 8 June 2018, after which time the government will set out its intentions once it has considered the responses.

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Allowing entrepreneurs’ relief on gains made before dilution – consultation

(AF1, AF2, JO3, RO3)

As mentioned earlier one of the consultations announced in the Spring Statement relates to allowing entrepreneurs’ relief on gains made before dilution.

Currently, if you dispose of shares or securities in your personal trading company (i.e. one in which you own 5% of shares and voting rights) that disposal will attract entrepreneurs’ relief subject to the satisfaction of the other relevant qualifying conditions.  This means that any capital gains will be taxed at 10% subject to the cumulative lifetime limit of £10 million.

However, in cases where the company issues new shares, this can cause a personal holding to fall below 5% which would mean that a later disposal won’t qualify for entrepreneurs’ relief. As a result, it was announced at Autumn Budget 2017 that an individual in this position can elect to be treated as if they had disposed of their shares and reacquired them at their market value just before the time the company issued the new shares. The individual may claim entrepreneurs’ relief on that gain either at the time of election, or on a future disposal of the shares.

HMRC has now launched a consultation which focuses on the mechanism which will achieve this extension of the relief. The new rules will apply to gains latent in shares and securities held at the time of fundraising events which take place on or after 6 April 2019.

This consultation will be of interest to individuals, companies, advisers, representative bodies and all others who would be affected by the changes.

The consultation will run until 15 May 2018.

This change in the rules will no doubt be very welcomed especially by those who were losing out on entrepreneurs’ relief and, as a result, finding themselves in a position whereby gains were taxed at the higher rate of 20%.

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Online platforms’ role in ensuring tax compliance by their users

(AF1, RO3)

One of the consultations announced in the Spring Statement and mentioned earlier is a call for evidence to help inform the government in exploring what role platforms could play in ensuring tax compliance by their users.

This is not a formal consultation, but more of an information-gathering exercise.

The government is interested principally in platforms:

  • that facilitate the sharing economy (e.g. by allowing people to earn money from resources they are not constantly using, such as cars or spare rooms);
  • that facilitate the gig economy (e.g. by allowing people to use their time and resources to generate income); or
  • that connect buyers with individuals or businesses offering services or goods for sale.

The government acknowledges there are multiple situations, some of which may not attract any tax liability - for example simply selling unwanted possessions – and some of which may be covered, in whole or in part, by different reliefs and allowances – such as the new trading and property income allowances - and that users’ knowledge will range from those who fully understand and comply to those who simply don’t appreciate that they are trading or otherwise generating taxable income.

The government accepts that simple guidance won’t be able to cover the full range of transactions possible through online platforms and they are keen to understand what steps platforms currently undertake to support their users in understanding their tax obligations. They also want to review the effectiveness of actions taken by other jurisdictions to make it easier for users of these platforms to report their liabilities. The government is, of course, also keen to limit dishonest behaviour by users who are knowingly evading tax.

This review will be of interest to online platforms, their users (both individuals and businesses), tax and other representative bodies, as well as anyone with views on the role online platforms could play in supporting the compliance of their users.

It will run until 8 June 2018.

References in this review to tax administration akin to that undertaken by employers and other intermediaries may cause some alarm amongst platforms and their users alike.  As might a suggested connection between this consultation and the government’s recent response to the Taylor Review of modern employment practices.

Whatever transpires, it clearly isn’t going to be easy to find an overarching solution that suits everyone.

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Updated guidance on property subject to the ATED 

(AF1, RO3)

The annual tax on enveloped dwellings (ATED) is payable mainly by companies that own UK residential property valued at more than £500,000. The dwelling is said to be 'enveloped' because the ownership sits within a corporate wrapper or envelope. The ATED is charged in respect of chargeable periods running from 1 April to 31 March each year.
The Government has issued updated ATED guidance confirming the annual tax charges for the 2018/2019 tax year, as follows:

Property value

Annual tax 2016/2017

Annual tax 2017/2018 

Annual tax 2018/2019 

£500,001 to £1,000,000

£3,500

£3,500

£3,600

£1,000,001 to £2,000,000

£7,000

£7,050

£7,250

£2,000,001 to £5,000,000

£23,350

£23,550

£24,250

£5,000,001 to £10,000,000

£54,450

£54,950

£56,550

£10,000,001 to £20,000,000

£109,050

£110,100

£113,400

£20,000,001 and over

£218,200

£220,350

£226,950


Fixed revaluation dates

Note that there are fixed revaluation dates for all properties regardless of when the property was acquired. These are every 5 years after 1 April 2012, for example at 1 April 2017, 1 April 2022 and so on.
A valuation is necessary when the property is purchased and this value will normally apply until the next fixed valuation date. This means that:

  • For those properties owned on or before 1 April 2012, they will have had an initial value at 1 April 2012 and the property will have had to be revalued on 1 April 2017;
  • For those properties acquired after 1 April 2012, but on or before 1 April 2017, they will have had an initial value at the date the property was acquired and the property will have had to be revalued on 1 April 2017;
  • For those properties acquired after 1 April 2017, but on or before 1 April 2022, they will have had an initial value at the date the property was acquired and the property will have to be revalued on 1 April 2022.

Note that the 1 April valuation applies for the following ATED year and the next four ATED years. So, for example, the 1 April 2017 valuation will apply for the 2018/2019 ATED year and all ATED years up to and including the 2022/2023 ATED year.

Other events that require a revaluation to be made:

a) Part disposals - if part of a property is disposed of (for example, a small parcel of land, or by granting a lease) the property must be revalued based on the property’s market value on the date of disposal. This valuation applies until a revaluation date of 1 April is reached.

b) New builds or reconstructed properties - if a property is newly constructed or has been altered to become a new dwelling it should be valued on the earlier of the date:

  • it was first occupied;
  • it was treated as coming into existence for Council Tax or, in Northern Ireland, domestic rating purposes.

Note that it is only an acquisition of a right in or over land which is relevant and so millions could be spent developing a property without triggering a new valuation at that point. However, obviously the expenditure could result in the property moving into a higher ATED band on the next 1 April valuation (or earlier valuation event, such as a part disposal.)

Clearly, care needs to be taken to ensure that the correct valuation date is used when assessing if the ATED applies and, if so, at what level.
In addition, many buy-to-let investors will now be buying buy-to-let properties via companies in order to obtain full tax relief for mortgage interest paid on loans used to purchase the property. And there is a particular exemption which means that no tax charge will arise if the property is let on market terms to a person who is not connected with the company.

However, if the value of the property for ATED returns purposes is more than £500,000, an ATED tax return must be made and the exemption claimed. Otherwise penalties may be incurred.

Time for change – a review of the ISA regime

(FA5)

In Time for change: a review of the ISA regime, a report published on 6 March by the Association of Accounting Technicians (AAT) ISA working group, the trade body argues that new types of ISA have different rules, age restrictions, monetary limits and interactions with other types of ISA, which have added most unwelcome complexities or even penalties to the product.

The report, which comes only a week before the Chancellor’s Spring Statement, recommends a number of changes to the ISA system, including:

  • ‘The Help to Buy ISA should be maintained but lose the ISA moniker
  • The lifetime ISA should be scrapped as it overlaps too much with the Help to Buy ISA
  • The Junior, Cash, Stocks & Shares and Innovative Finance ISA should be merged into a new ISA wrapper; the Everything ISA. The annual limits on this new ‘cradle to grave’ ISA would be scrapped and replaced by a one (sic) £1 million total limit – mirroring the pensions lifetime allowance. Any new ISA products created in the future, such as a possible workplace ISA, would be placed within the Everything ISA wrapper.’

When first introduced the ISA was seen by many to be nothing more than a simple savings vehicle. However, over more recent years the introduction of different versions of the product, namely the Help to Buy ISA, the Lifetime ISA and the Innovative Finance ISA, have meant that ISAs in general have become more complicated. Even with the introduction of recent flexibilities the underlying rules applicable to each different type of ISA are not simple to follow. It will nonetheless be interesting to see whether any changes will be made to the product types going forward. In any event, it is likely that most would welcome changes to the product which lead to rationalisation rather than altering the underlying tax benefits.

Trust registration service penalties announced by HMRC

(AF1, JO2, RO3)

HMRC has now published the penalties for late filing on the trust registration service (TRS). 

On 8 December 2017, HMRC announced that while the 31 January 2018 deadline for making a TRS return would remain in place it would not charge a penalty if trustees, or an agent acting on behalf of the trustees, failed to register their trust on the TRS before 31 January 2018 but no later than 5 March 2018.

Below is the latest announcement from HMRC on the penalties for late filing which we quote verbatim as it is self-explanatory.

‘HMRC will not automatically charge penalties for late TRS returns. Instead we will take a pragmatic and risk based approach to charging penalties, particularly where it is clear that trustees or their agents have made every reasonable effort to meet their obligations under the regulations. We will also take into account that this is the first year in which trustees and agents have had to meet the registration obligations. 

While our information suggests that most TRS returns have been filed, if you have not yet completed your TRS registration(s), you should do so as soon as possible.

‘When penalties can be issued

Penalties can be charged for administrative offences relating to a relevant requirement.

These are: 

  • a requirement to register using the TRS by the due date of 31 January after the end of the tax year in which the trustees pay tax on trust assets or income and
  • a requirement to notify any change of information by the due date of 31 January after the end of the tax year in which the trustees pay tax on trust assets or income.’ 

‘The administrative offences penalty

HMRC will charge a fixed penalty to reflect the period of delay: 

  • Registration made up to three months from the due date – £100 penalty
  • Registration made three to six months after the due date – £200 penalty
  • Registration more than six months late – either 5% of the tax liability or £300 penalty, whichever is the greater sum.’

‘There is currently no facility to notify HMRC of any change of information online and, as such, we will not charge penalties for a contravention of this requirement until the online function is available. 

‘A penalty will not be payable if we are satisfied you took reasonable steps to comply with the regulations.’

Given the above statement from HMRC that ‘a penalty will not be payable if we are satisfied you took reasonable steps to comply with the regulations’, any trustee or agent filing late would be well advised to keep a note of the steps taken to file on time. 

ICAEW asked HMRC if an extension would be available due to the inclement weather during the week ended 4 March. Indeed, HMRC announced that, in relation to its own services, many of its offices were shut or operating on reduced staffing levels. However, HMRC has not (so far) announced any extension.

INVESTMENT PLANNING

Spring begins..?

(AF4, FA7, LP2, RO2)

February ended with two icy blasts; the Beast from the East and a 2.37% fall in the S&P 500 from the West. The month’s returned volatility gained plenty of publicity, but the year-to-date (YTD) figures are not quite what you might expect:

INDEX

29/12/2017

21/01/2018

28/02/2018

Feb Change

YTD Change

FTSE 100

 7,687.77

 7,533.55

 7,231.91

-4.00%

-5.93%

FTSE 250

 20,726.26

 20,243.60

 19,687.27

-2.75%

-5.01%

FTSE 350 Higher Yield

 3,938.35

 3,799.89

 3,659.35

-3.70%

-7.08%

FTSE 350 Lower Yield

 4,212.72

 4,086.97

 3,915.83

-4.19%

-7.05%

FTSE All-Share

 4,221.82

 4,137.66

 3,981.61

-3.77%

-5.69%

S&P 500

 2,673.61

 2,823.81

 2,713.83

-3.89%

1.50%

Euro Stoxx 50 (€)

 3,503.96

 3,609.29

 3,438.96

-4.72%

-1.86%

Nikkei 225

 22,764.94

 23,098.29

 22,068.24

-4.46%

-3.06%

MSCI Em Markets (£)

 1,602.28

 1,650.68

 1,622.98

-1.68%

1.29%

2 yr UK Gilt yield

0.49%

0.72%

0.83%

   

10 yr UK Gilt yield

1.24%

1.49%

1.59%

   

2 yr US T-bond yield

1.89%

2.12%

2.24%

   

10 yr US T-bond yield

2.42%

2.73%

2.93%

   

2 yr German Bund Yield

-0.53%

-0.57%

-0.60%

   

10 yr German Bund Yield

0.42%

0.63%

0.62%

   

£/$

 1.3528

 1.4221

 1.3778

-3.12%

1.85%

£/€

1.1266

1.1415

1.1297

-1.03%

0.28%

£/¥

152.3883

155.2239

147.0232

-5.28%

-3.52%

UK Bank base rate

0.50%

0.50%

0.50%

   

US Fed funds rate

 1.25%-1.50%

 1.25%-1.50%

 1.25%-1.50%

   

ECB base rate

0.00%

0.00%

0.00%

   


A few comments are worth making:

  • The MSCI All World Index was up 1.6% year-to-date in US $ terms and down 0.3% in sterling terms.
  • For all the focus on the USA market and 1,000 point moves in the Dow Jones Index, the professional’s benchmark, the S&P 500, is still up5% from where it started the year – January’s 5.6% jump has been rapidly forgotten.
  • As the table shows, 10 year government bond yields have risen in the USA, UK and Germany since the start of 2018. The USA rise has been helped by the latest bullish noises from the new Federal Reserve chairman, Jay Powell.
  • The UK indices have poor YTD numbers because they failed to join in the January rally, but participated in the February fall.

Behavioural finance theory says we feel £1 of loss about twice as much as £1 of gain. That might explain why it doesn’t feel like the year-to-date performance has been as flat (in sterling terms) as MSCI says it was.

National Savings - Fixed rate bond returns cut

(AF4, FA7, LP2, RO2)

NS&I has announced a cut in the return on 3-year Guaranteed Growth Bonds and Guaranteed Income Bonds.

Back in December National Savings & Investments (NS&I) relaunched 1-year and 3-year Guaranteed Growth Bonds and Guaranteed Income Bonds. As we suggested in a Bulletin at the time, the return of the bonds may have had something to do with NS&I meeting its fund-raising target for 2017/18.

Now, with government borrowing for the year likely to come in at about £10bn less than the Office for Budget Responsibility was projecting last November, NS&I have announced a cut in the rates for their 3-year bonds, which had been unusually competitive. The rates on offer are now 0.25% lower:

Product

Term

New rate from 6/03/2018

Guaranteed Growth Bond

3 Years

1.95% gross/AER

Guaranteed Income Bond

3 Years

1.90% gross/1.92% AER


The 3-year Investment Guaranteed Growth Bond, announced by Mr Hammond in the Autumn Statement 2016, remains on sale until 10 April with its rate unchanged at 2.2%, but the maximum investment for this is only £3,000 against £1m for the Guaranteed Bonds.

Pensioners with maturing 3-year 65+ Guaranteed Growth Bonds (Mr Osborne’s pre-election bribe) will also be able to roll over their investment for another 3-year term at a rate of 2.20% gross/AER. The last of these bonds will mature on 15 May 2018. Probably the Treasury would prefer not to see this large slice of capital disappear (about £9.5bn according to NS&I accounts), although it should be noted that selling 3-year gilts yielding only about 0.80% would be a cheaper option.

Next week we will see the government’s financing remit for 2018/19. NS&I’s target for 2017/18 was reduced from £13bn to £8bn in November 2017; it may well fall further on 13 March.  

PENSIONS

HMRC newsletter

(AF3, FA2, JO5, RO4, RO8)

HMRC has recently published Newsletter 96 which covers:

  • Scottish Budget 2017 – Taxation of Pension Income
  • Relief at source - annual return of individual information for 2017 to 2018 onwards
  • Look up residency status for relief at source
  • Relief at source – excess relief
  • New pensions online service
  • Reporting of non-taxable death benefits

Of notable interest –

The newsletter explains how the Scottish Rates of income tax will apply to pension charges including:

  • Fixed rate charges
    • Those pension tax charges that don’t apply at members’ marginal rate of Income Tax will continue to apply at the current fixed rates.
  • Marginal rate charges
    • For pensions tax charges that do apply at members’ marginal rate of Income Tax, Scottish taxpayers will be liable to tax at the new Scottish Income Tax rates.
  • Pension flexibility payments and PAYE
    • Normal rules will apply, and where the fund is not extinguished with the first payment it will be treated as an ongoing PAYE source.
  • Lump sum death benefits
    • For Scottish taxpayers who receive lump sum death benefits (other than trivial commutation lump sum death benefits) and who are liable to Income Tax at their marginal rate, pension scheme administrators will continue to deduct Income Tax under PAYE in the same way as for pension flexibility payments.

ONS releases a fuller picture of the UK’s funded and unfunded pension obligations: 2010 to 2015

(AF3, FA2, JO5, RO4, RO8)

The ONS have published estimates of the total entitlement of households in the UK and abroad to pensions provided by the UK government, pension funds and insurance companies. These are also the total obligations, or gross liabilities, of UK pension providers. The release also includes estimates for State Pensions and breakdowns by whether pensions are funded or unfunded and defined contribution or defined benefit.

Key points from the release

At the end of 2015, total accrued-to-date gross pension liabilities of UK pension providers in respect of employment-related (workplace) pensions and State Pensions were estimated at £7.6 trillion, up from £6.6 trillion at the end of 2010 (not adjusted for inflation). The liabilities of UK pension providers are also the entitlements of households.

The 2015 total included £5.3 trillion of pension entitlements (279% of gross domestic product (GDP)) that were the responsibility of central and local government, of which:

  • the largest part was £4 trillion of entitlements to unfunded State Pensions, which are received by most households in retirement (213% of GDP)
  • unfunded defined benefit workplace pension entitlements for public sector employees were estimated at £917 billion (49% of GDP)
  • funded defined benefit workplace pension entitlements for (mainly) public sector employees were worth £334 billion (18% of GDP)
  • The 2015 total included £2.3 trillion of pension entitlements (124% of GDP) that were not the responsibility of central or local government:
    • £2 trillion of funded defined benefit workplace pension entitlements for private sector employees (106% of GDP)
    • £240 billion of defined contribution workplace pension entitlements for (mainly) private sector employees (13% of GDP)
    • an estimated £103 billion of annuity entitlements associated with workplace pensions (5% of GDP)

In addition to workplace pensions and State Pensions, the Office for National Statistics estimates that in 2015 there was:

  • £302 billion in defined contribution individual personal pensions (16% of GDP)
  • an estimated £148 billion of annuity entitlements associated with individual personal pensions (8% of GDP)

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.