My Basket0

My PFS - Technical news - 24/07/18

Publication date:

24 July 2018

Last updated:

03 August 2018


Technical Connection

Personal Finance Society news update from 6th to 19th July 2018.

Quick Links

Taxation and Trusts

Investment planning



Results from the rent-a-room relief review

(AF1, AF2, AF4, FA7, JO3, LP2, RO2, RO3)

The Treasury has published its response to last year’s open consultation on rent-a-room relief.

The small print of the Autumn Budget’s Red Book included a statement that the government would issue “a call for evidence to establish how rent-a-room relief is used and ensure it is better targeted at longer-term lettings”. At the beginning of December, the relevant paper emerged to no great fanfare. On Friday 6 July the Treasury published a summary of responses alongside draft clauses for the Finance Bill 2018/2019. 

We have remarked in the past that the Treasury seemed to be taking aim at the digital disrupters of the property-letting business, such as Airbnb. The questions in the consultation suggested that the government wanted to narrow the scope of the relief, which currently exempts rental income of up to £7,500 per tax year. The possibility of minimum letting terms or excluding holiday lets were both raised.

In the event, the consultation process has highlighted the difficulties with such refinements. For example, a landlord may not wish to ask why a property is required for a short-term let and there would be instances of mixed work/holiday use. The responses also revealed “no evidence that the length of a letting is an appropriate proxy for the government to achieve its objectives for rent-a-room relief”.

However, there is one proviso which the government has decided to apply: a shared occupancy test. This “will require the individual to be resident in the property and physically present for at least some part of the letting period”. The draft Finance Bill 2018/2019 clauses reveal that to satisfy this condition, the individual or a member of their household, must have “the use of the residence as sleeping accommodation”. Thus, letting out a whole property would not qualify for relief. It is somewhat ironic that this idea should surface during Wimbledon fortnight, when many of that area’s residents desert their homes for two weeks and let them out at high rents.

The change is due to take effect from 2019/2020.

Source: HMRC  

Income tax pension benefits - flat rate rumours reappear

(AF3, FA2, JO5, RO4, RO8)

The Times carried a report at the weekend of 7/8 July suggesting that revisions to pension contribution tax relief were back on the agenda.

How many times have you read an article suggesting that pension tax relief was a “low hanging fruit” for the Chancellor? It is an easy story for journalists to write, given HMRC statistics show the gross cost of income tax relief on pension contributions in 2016/2017 was £38.6bn., to which can be added £16.2bn for NIC relief on employer contributions. Then there is the fact that relief remains heavily skewed towards higher rate taxpayers, despite the regular attacks on the annual allowance.

Rumour has it that the previous Chancellor, George Osborne, came close to introducing a flat rate of tax relief for pension contributions. Not only does the approach superficially look fairer, it can also generate a useful sum for the Exchequer if the flat rate is pitched low enough – the Resolution Foundation reckon the break-even rate, matching the current tax relief cost for the Exchequer, would be 28%.  

As mentioned in the first sentence, the Times has recently reported that the Treasury was once again examining flat rate relief for pensions. Given that the government has committed itself to £20.5bn a year extra NHS expenditure by 2023, it is perhaps no surprise that cropping some of that “low hanging fruit” is being considered. The newspaper said that one option being reviewed was a flat rate of 25%, which would create £4bn a year in tax relief savings for the Treasury. As a tax increase, the move would have the political virtue of looking like a decrease to the majority of (basic rate) pension contributors.

Will it happen in the Autumn 2018 Budget, always assuming the government survives that long? The politics look extremely difficult; there is enough warfare on government benches already without lobbing in such a contentious tax reform. The opposition benches would probably support the idea, but the government would not wish to rely on them to pass the measure.  Given that the NHS pledge is not £20.5bn immediately, it may be that the Treasury’s research is ‘parked’ for later, with other measures (eg ending the freeze on fuel duty, and freezing allowances and tax bands|) taken first.

There is a sense of long-term inevitability about flat rate tax relief for pension contributions. The current story will probably disappear, like its predecessors, but one day…

Sources: HMRC, The Times

HMRC publishes draft legislation to allow migrant trusts to defer exit charges

(AF1, JO2, RO3)

Following on from the Court of Justice of the European Union (CJEU) decision in the 2017 Panayi case, HMRC has published draft legislation allowing trustees of migrant settlements to defer the payment of CGT exit charges on unrealised gains.

Where a UK resident trust moves its residence outside of the UK, a capital gains tax ‘exit’ charge will arise on any unrealised trust gains under section 80 Taxation of Chargeable Gains Act 1992. In 2017, the CJEU was asked to consider whether such ‘exit charges’ were compatible with rules on the right of freedom of establishment where a UK resident trust moves its place of residence to another EU or EEA member state [Trustees of the P Panayi Accumulation and Maintenance Settlements (C-646/15)].

While the CJEU held that the charges were not incompatible with this right, it found that, in the case of those trusts with economically significant activities, the UK should have offered them a choice between immediate payment or deferral of the tax that may become due, subject to certain conditions. Under the Taxes Management Act 1970 (TMA) the charge is currently payable by the 31 January following the tax year in which the charge arose.

HMRC is now updating its legislation in line with the CJEU ruling. The proposed new rules provide that an option of deferring the payment and paying it over 6 years in equal instalments (with interest) will be offered to trusts that become resident in another member state of the EU or EEA, if the assets subject to the charge were used immediately before and after the change of residence/ establishment for an economically significant activity.

Non-UK resident individuals who trade through a branch or agency in the UK and who have decided to move to another EU or EEA member state will also be able to defer payment of the exit charge that would otherwise arise on their unrealised gains, under the new rules.

The new legislation will be introduced in Finance Bill 2018/19 in the form of a new Schedule 3ZAA TMA.

While the new legislation may provide a welcome cashflow advantage for affected trusts and individuals, it remains to be seen to what extent these arrangements will continue to apply once the UK has left the EU.

Source: Policy paper from HMRC entitled ‘Deferral of exit charge payments for Capital Gains Tax’ published 6 July 2018

Records for trusts

(AF1, JO2, RO3)

HMRC has recently updated its guidance in relation to the records which should be kept with reference to trusts.  The guidance specifically covers what must be kept for tax purposes, who can access the information and what to do if the records are lost or destroyed.

The guidance is useful for those who are dealing with or administering trusts; and will also serve as a valuable tool to advisers who assist in this area.

The guidance is broken down into sections, a summary of which follows:

Records that must be kept

This includes things like bank statements, details of any other investments and income from those investments, for example dividend income or interest payments.

Information on the trust would include the name of the trust, when it was set up, where it is resident for tax purposes and settlor and beneficiary details, eg names and addresses.

Records of income payments to beneficiaries

Trustees should keep records of all income payments made to beneficiaries and details of whether these are made at their discretion or not.

How long records need to be kept

How long written records need to be kept after the trust has made the final payment to beneficiaries depends on whether the trust has any business income.

If the trust has business income the business records must be kept for 5 years after the filing deadline of 31 January. For example, if trustees submitted a return for tax year 2012/13 by 31 January 2014, they must keep the records until 31 January 2019.

Missing the deadline

If a tax return is submitted after the normal filing deadline, the records should be kept until the latest of either:

  • 15 months after the date the return was sent in;
  • 5 years after the deadline, if they are business records.

If HMRC starts a check

It may be necessary to keep records for longer if a HMRC check has already been started. The records ought to be kept until HMRC notifies the trustees that the check is finished.

The trustees must then delete their records, unless:

  • they are legally obliged to keep them;
  • a trustee reasonably believes they must be kept for legal purposes;
  • someone the trustees have information about gives you their consent to keep it.

Who can access your records?

A number of UK law enforcement authorities can request information about the beneficial owners of all express trusts, for example, HMRC, the National Crime Agency, Police forces etc…

If records are lost or destroyed

If the records required to complete the Trust and Estate Tax Return have been lost or destroyed, initially the trustees should try to find the missing information where possible – for example asking banks for statements, although this could incur a cost. In the event that information cannot be found it will be necessary for the trustees to estimate the figures and use the ‘Additional Information’ section on the tax return to show how they have arrived at those figures – it is possible to give the correct figures to HMRC within one year of the final date for filing the return.

Source:  HMRC Guidance entitled ‘Records to keep for trusts’ published 5 July 2018

Workplace charging of electric and hybrid vehicles – new legislation

(AF1, RO3)

The Government announced in the 2017 Autumn Budget that it would introduce an exemption to remove any income tax or National Insurance contribution liability for charging personally-owned electric vehicles (all-electric and plug-in hybrid cars and vans) at work with effect from 6 April 2018.

In what’s been a rather back-to-front way of introducing this, draft legislation on vehicle-battery charging was published for consultation on 6 July 2018.

The new legislation
No liability to income tax will arise in respect of the provision, at or near an employee’s workplace, of facilities for charging a battery of a vehicle used by the employee (including a vehicle used by the employee as a passenger), provided the facilities are made available generally to the employer’s employees at that workplace.

The draft guidance
Draft guidance for employers was also published on 12 April 2018. However, HMRC now says that this doesn’t fully reflect the new legislation so this guidance will be updated in the Summer.

Notably, the requirement for employers to provide a ‘charging point dedicated to charging all-electric or plug-in hybrid vehicles and specifically designed for this purpose’ appears to have been dropped. This is a welcome broadening of the legislation, as not all employers would have been keen, or able, to incur the cost of installing a specialised charging point.

There was already an exemption for the provision of charging facilities which applies to taxable cars and vans, eg company cars.

The Government believes this new legislation will support air-quality initiatives by incentivising the purchase of electric (all-electric and plug-in hybrid) vehicles by individuals.

However, complications remain for pure electric company cars, as employers can’t use advisory fuel rates to reimburse employees, and the tax treatment depends on the use of the car.

The current position

Pure electric / hybrids


Personal car

Company car





Is there a fuel benefit charge on electricity provided by the employer at work?


No – from 6 April 2018.


Is there an exemption for employer reimbursements of electricity?


Yes, up to approved mileage rates.*

Any excess is taxable as earnings.

If the employer pays or reimburses less than the approved mileage rate, the employee can claim a deduction for the remainder.



Yes, if business use only reimbursed.

Mixed use reimbursement is taxable as earnings.

If mixed use reimbursement, or no reimbursement, the employee can claim a deduction for the cost of business miles.

Advisory fuel rates only apply to fuel, not electricity. Hybrid cars are treated as either petrol or diesel for the purposes of the advisory fuel rates.

Is there a taxable benefit where the employer pays for a charging point to be installed in the employee’s home?




*Approved mileage rates for cars and vans: 45p per mile for first 10,000 miles; 25p per mile for any excess.

The legislation will be introduced in the 2018/2019 Finance Bill. The draft guidance will be updated in the Summer and published in HMRC’s Employment Income Manual following Royal Assent of the 2018/2019 Finance Bill.

Source: HMRC Policy paper: Workplace charging for all-electric and plug-in hybrid vehicles – dated 6 July 2018

Tax avoidance involving profit fragmentation: consultation response

(AF1, RO3)

HMRC has published responses to its consultation around proposals to tackle tax avoidance schemes designed to deliberately move UK profits outside the charge to UK tax, often using offshore trusts and companies, along with draft legislation.

Whilst respondents agreed that this type of arrangement is unacceptable and should be prevented and counteracted, concern was expressed about the specific design of the proposed legislation, and the proposals for notification and advance payment in particular.

The consultation sets out proposals to require a taxpayer who enters into arrangements of this sort to notify HMRC, and to require payment of any tax shown on a relevant charging notice, the idea being to remove the cash flow advantage that would otherwise arise from using those arrangements. The notification requirement would deliberately be set wider than the conditions required to bring sums into charge, to allow HMRC to examine cases where there is room for doubt over whether the new provisions apply or not.

Respondents were, however, concerned that the proposed notification rules were drawn too widely and would draw many compliant businesses into the requirement to notify, and cause many more to at least consider whether they should notify.

Unlike action taken by the Government in recent years to tackle anti-avoidance by larger enterprises, in this instance the avoidance arrangements described are seen by HMRC as generally being undertaken by individuals and smaller entities or groups.

Respondents were particularly concerned in cases where the “substance” test would clearly indicate that profits had been allocated correctly and a suggestion was made to include the option for taxpayers to obtain an advance clearance, so to avoid the need for notification.

The Government has said it will consider additional objective conditions that might be put in place to remove as many compliant taxpayers from the potential requirement to notify as possible, but without affecting the scope of the legislation in its application to fragmented profits. There could be some duplication, however, as notification will be required under these rules even if notification is also required under the disclosure of anti-avoidance schemes (DOTAS) rules.

The Government has also decided to postpone the following:

  • proposals to issue a preliminary notice explaining the reasons for a proposed charge and the basis on which it has been computed, giving the taxpayer a period of only 30 days to make submissions to try to change HMRC’s view; and
  • proposals to issue a charging notice, which will require payment of tax and be followed by a review period during which the charge may be adjusted, where HMRC considers that a charge is still due (which may differ from that set out in the preliminary notice).

The Government will monitor compliance with these rules and will keep the requirement for an early payment rule under review.

Respondents had raised significant concerns about these proposals, suggesting that uncertainty about the amount to be charged would, in effect, require almost a full enquiry process to establish the correct position.

Other concerns were that given the breadth of the notification rules, compliant businesses could face an early payment requirement in cases where it would be unlikely that there would be additional tax to pay; that the 30-day period for taxpayers to make submissions against preliminary notices was too short; and that some taxpayers may not be able to pay if they do not have access, or the right, to the funds in a case involving an offshore trust.

Next steps
The changes will be finalised for the 2018/2019 Finance Bill, after a period of further technical consultation on the legislation, and are planned to come into effect from 1 April 2019 (corporation tax) / 6 April 2019 (income tax and National Insurance). And the Government has promised detailed guidance in advance of its introduction in April.

We will of course keep you informed about any further developments.

Source: HMRC Policy paper; Profit fragmentation – dated 6 July 2018.

CGT payment window for residential property gains

(AF1, RO3)

HMRC has recently issued a policy paper which introduces a requirement for UK residents to make a payment on account of capital gains tax (CGT) from April 2020 following the completion of a residential property disposal. It also expands an existing similar requirement for non-residents (including UK residents who make disposals in the overseas part of a split tax year).

Following consultation, legislation will be introduced in Finance Bill 2018/19 to replace sections of the Taxes Management Act 1970 with a new schedule. The schedule will apply to both residents and non-residents setting out the circumstances when a return of a residential property disposal is required to be delivered to HMRC; and how to calculate the amount payable on account of the person’s liability to CGT for the tax year in which the disposal takes place.

There has been great concern regarding the ‘payment window’ of 30 days and, while the Government intends to reflect on this further, generally speaking a return in respect of the disposal will need to be delivered to HMRC within 30 days following the completion of the disposal, and a payment on account made at the same time. The self-assessment calculation of the amount payable on account will take the individual’s annual CGT exemption and any losses into account. The rate of CGT payable will be determined after making a reasonable estimate of the amount of taxable income for the year.

For disposals by UK residents, the new reporting and payment requirements will not apply:

  • where the gain on the disposal (or the total gain if more than one property is sold) is not chargeable to CGT - for example, if the gain is covered by private residence relief, unused losses or the annual exempt amount, or
  • if the gain is from the disposal of a foreign residential property in a country covered by a CGT double taxation agreement, or
  • arises to a person taxed on the remittance basis.

Source: HMRC Policy paper ‘Capital Gains Tax payment window for residential property gains’ – published 6 July 2018

Trust registration service – do you need to register your trust?

(AF1, JO2, RO3)

The online Trusts Registration Service (TRS) has now superseded the old paper based system for registering trusts that generate tax consequences and imposes additional obligations on those trusts that are required to register. Here, we take a look at which trusts need to register on the TRS and what all trustees need to be aware of to ensure that they comply with their reporting obligations.

The Trusts Registration Service (TRS) is a new online service that provides a single route for trustees and personal representatives of complex estates to comply with their registration obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI No. 2017/692), which came into force on 26 June 2017.  The TRS replaces the paper 41G (Trust) form and the ad hoc process for trustees to notify HMRC of changes in their circumstances. Trusts that are required to register with HMRC are now required to do so through the TRS.

Which trusts need to register on the TRS?

  • All UK express trusts where the trustees have incurred a tax liability in a given tax year; and
  • All non-UK express trusts which receive UK source income or have UK assets on which the trustees have incurred a UK tax liability in a given tax year will need to register.

The term ‘express trust’ covers all trusts that have been deliberately created by a settlor (i.e. as opposed to statutory, resulting or constructive trusts); while a UK tax liability for these purposes includes a liability to income tax, capital gains tax, inheritance tax and/or stamp duty land tax.

As the 41G (Trust) form did not collect sufficient information to meet the requirements of the new legislation, those trusts which registered with HMRC before the launch of the TRS will also need to use the service to provide all the information that is now required. 

Note that if the trustees have not incurred a tax liability, either because they have claimed a relief or because the liability falls on the settlor or on a beneficiary, registration on the TRS is not required. This would include the situation where income is mandated directly to an interest in possession beneficiary. Trusts that have no other UK tax liability other than a tax liability of less than £100 on bank or building society interest income are also exempted from the requirement to register.

Registration will not be required if the trust is a bare trust although trustees of bare trusts are nonetheless required to keep accurate and up-to-date written records of the beneficial owners, in the same way that trustees of any other trust type must do.

What is the position for trusts invested wholly in non-income producing assets such as life assurance investment bonds or capital redemption policies?

Trusts that are invested wholly in non-income producing life assurance policies or capital redemption policies will not usually be required to register on the TRS unless and until:

  • a chargeable event under the policy arises at a time when the settlor is deceased or non-UK resident;
  • there is a chargeable transfer for IHT purposes because funds or assets greater than the settlor’s available nil rate band are added to the trust and the trustees pay the tax; or
  • a periodic charge or exit charge arises for IHT purposes.

If a chargeable event arises under the policy while the settlor is alive and UK resident, the tax liability will fall to be assessed on the settlor rather than the trustees and the trust will not therefore be required to register at that time.

Note that the requirement to register and/or update or confirm the information contained in the register only arises if the trust has a tax liability in the given tax year. This means that, in the case of a life policy trust, registration may be necessary in one year (perhaps because a part surrender is made and an excess arises) but the requirement to register or update may not then arise again for several years (i.e. until there is a further chargeable event).

What is the position for trusts that hold property?

Trusts that hold property will, like other trusts, only need to be registered if the trustees incur a liability to tax. Thus, if the property is occupied by a beneficiary – and is not income-producing - no requirement for registration will exist unless a taxable event occurs for IHT, CGT or SDLT purposes. If the trust holds an investment property which generates a rental income, then the trustees will usually need to register the trust on the TRS. The exception will be where the trust is an interest in possession trust where all the trust income is mandated directly to the beneficiary.

What are the deadlines for registration?

The deadline for registration depends on whether the trust is already registered for Self-Assessment (SA) for income tax or capital gains tax:

  • If the trust is already registered for income tax or capital gains tax and the trustees of the trust have incurred a relevant UK tax liability in a given tax year, then registration must be completed by no later than 31 January after the end of that tax year;
  • If the trust is not registered under SA but has incurred either an income tax or a capital gains tax liability for the first time in a given tax year then registration must be completed by no later than 5 October after the end of that tax year;
  • If the trust is not already registered for SA or does not need to register for SA but has incurred either an inheritance tax, stamp duty land tax, stamp duty reserve tax, or a land and buildings transaction tax (Scotland) liability in that tax year, then registration must be completed by no later than 31 January after the end of that tax year.

Penalties will apply if deadlines are not met.  However, for the first year of the TRS only, HMRC has extended the TRS registration deadline for new trusts and complex estates, that have incurred a liability to income tax or capital gains tax for the first time in the tax year 2016/2017, from 5 October 2017 to 5 January 2018; and have extended the deadline for existing trusts from 31 January 2018 until 5 March 2018.

Who is responsible for registering the trust?

The responsibility for registration lies with the trustees although trustees can appoint a lead trustee to complete the registration process or may alternatively appoint an agent to register the trust on their behalf. 

Are there any trust registration responsibilities for institutions who provide draft trusts or for advisers who use the draft trusts for their clients?

No. Providers of trust documents and financial advisers have no TRS obligations in relation to the trusts that they provide/advise on. However, advisers will need to ensure that they understand their clients’ reporting obligations under the new regulations and should make their clients aware of those obligations as part of the advice process when recommending trust-based solutions.

What steps must be followed to register a trust on the TRS?

Trustees who are required to register must do so online at

Before they can register, they must apply online for an “organisation” Government Gateway account to obtain a Unique Taxpayer Reference (UTR). A separate account is required for each trust even if the settlor and trustees are the same.

What information is required by the TRS?

The TRS will ask for:

  • the name of the trust
  • the trust address and telephone number
  • the date the trust was established
  • the country where the trust is resident
  • details of the trust assets, including addresses of properties, and an estimated market valuation of assets held at the date that the assets were settled; and 
  • identity details (i.e. name, address, date of birth and NI number (or passport /ID number if no NI number) of the settlor, trustees, the beneficiaries (or class of beneficiaries where individual beneficiaries have yet to be determined or identified); and any person exercising effective control over the trust, such as a protector or appointor.

Agents acting on behalf of trustees will also be required to provide contact information about themselves.  However, no information is required in respect of other advisers who may be providing legal, financial or tax advice to the trustees in relation to the trust.

What needs to be disclosed in relation to beneficiaries?

Under the TRS the trustees will need to disclose to HMRC the identities/names of all beneficiaries who are either actual or potential beneficiaries.  Where the beneficiaries of a trust are not named, but there is simply a class of beneficiary, then a description of the class of beneficiary should be recorded on the TRS. Trustees will, however, need to disclose the identity of any potential beneficiary who receives a financial or non-financial benefit from the trust after 26 June 2017.

What obligations exist post-first registration?

The trigger point for either first registration or updating details on the register is when the trustees incur a liability to pay any of the relevant UK taxes. So, in tax years where no tax liability arises then the trustees are not required to register or update in that tax year (although if changes have occurred, updates can be made on a voluntary basis if desired).  If, however, the trustees have incurred a tax liability in a given tax year, the trust register will need to be updated to reflect any changes – for example, to trustee, settlor or beneficiary details - by 31 January after the end of the tax year in which the change occurred. Where no relevant changes have taken place since the end of the previous tax year, the update can be limited to confirmation that no such changes have occurred.

Note that the details of trust assets are only provided once at the first point of registration and there is no requirement to update information about the trust assets on the TRS even if these change over time. All other asset information is dealt with on the SA900 tax return, just as it was before the TRS was introduced.

Is the information held on the Trust Register in the public domain?

No. The legislation specifies that information held on the TRS can only be shared by HMRC with law enforcement authorities in the UK or in another EEA member state, if requested.  These include the Financial Conduct Authority, the National Crime Agency and the Police Service.

Further information

HMRC has produced some guidance on the TRS in the form of a series of Frequently Asked Questions. The latest version of the guidance is currently available in draft form only and can be accessed here:

Regular updates on the TRS are published in HMRCs quarterly Trusts and Estates Newsletters. The December Trusts and Estates Newsletter can be accessed here:

Source: Various pieces of information put out by HMRC.

A new 12-year assessment time limit

(AF1, RO3)

Despite receiving a somewhat less than favourable reaction to its 19 February consultation, HMRC will be extending the time period over which it can go back and assess tax on undeclared offshore income, gains and chargeable transfers to 12 years.

The new measure, which will apply from 6 April 2019, increases the tax assessment time limit for ‘non-deliberate’ offshore non-compliance, from the existing time limits of 4 years, or 6 where the loss of tax is due to carelessness, after the end of the year of assessment (or date of the chargeable transfer) to which it relates.

Where the taxpayer has sought to ‘deliberately’ evade tax, the time limit will remain 20 years.

The new measure follows on from another assessment time limit extension related to offshore non-compliance introduced by the ‘Requirement to Correct’ (RTC) rules. The RTC rules extended the time limits for assessing income tax, capital gains tax and inheritance tax, related to offshore non-compliance, committed before 6 April 2017, so that for any tax that HMRC could have assessed on 6 April 2017, it will continue to be able to assess that tax until the later of 5 April 2021 and the date on which an assessment can be raised using the normal rules.

The new 12-year time limit

The new 12-year time limit will apply to any year that is still in date for assessment when the new legislation comes into effect. It won’t apply to any year for which the time limit has expired before 6 April 2019.

This means it will apply:

  1. in a case involving a loss of tax brought about carelessly by a person, in relation to assessments on the person relating to the 2013/2014 tax year and subsequent tax years; and
  2. in any other case, in relation to assessments relating to the 2015/2016 tax year and subsequent tax years.

Example 1

A taxpayer has underpaid income tax on offshore income due to careless behaviour for the tax year 2013/2014.

Under the existing time limit rules, HMRC can assess that tax at any time up to 5 April 2021 (ie. six years after the end of the year of assessment plus the RTC extension).

However, the new 12-year time limit will apply from 6 April 2019, before that existing time limit has run out. HMRC will therefore be able to assess lost tax until 12 years after the end of the 2013/2014 year of assessment, ie. until 5 April 2026.

Example 2

A taxpayer has underpaid income tax on offshore income due to careless behaviour for the 2009/2010 tax year.

Under the existing time limit rules, HMRC could have assessed that tax at any time up to 5 April 2016 (six years after the end of the year of assessment). That time limit expired before the new 12-year time limit legislation comes into force on 6 April 2019 so is unaffected by this proposal. It is also unaffected by the RTC rules because the time limit for assessing the lost tax for 2009/2010 ended before 6 April 2017.

For inheritance tax, the extended assessment time limits will apply to chargeable transfers taking place on or after 1 April 2013 where the loss of tax is brought about carelessly, and 1 April 2015 for other cases not subject to a longer time limit.

Response to the consultation

According to HMRC, overall, respondents to the consultation were not in favour of the decision to extend assessment time limits, with most respondents feeling that the distinction in the existing regime between a mistake despite taking reasonable care and carelessness should be maintained.

However, HMRC argues that those using complex offshore structures should not be able to escape the payment of tax simply because the investigation takes some time and says that its experience of offshore cases suggesting an extension to 12 years is the right option to ensure that taxpayers pay their fair share.

Nevertheless, HMRC did concede in a couple of areas.

Firstly, it hasn’t gone ahead with its proposal to extend the new assessment time limits to corporation tax.

And, secondly, the extended time limits won’t apply where HMRC could reasonably be expected to raise an assessment within the existing time limits based on information received automatically, via the Common Reporting Standard (CRS). Under the CRS, HMRC will receive information about overseas accounts, insurance products and other investments, including those held through overseas structures such as companies and trusts. This includes details of the account holder or owner, including name, address, date of birth, balance of the account and payments into the account.

On concerns raised about the interaction between the new extended time limits and the existing RTC provisions, HMRC said that the RTC is a short-term measure that requires disclosure of certain offshore non-compliance before 1 October 2018 after which new stricter penalties will operate, whilst the new 12-year extended time limit is a longer-term solution to the problem of investigating complex offshore cases. It believes the two measures complement each other and make it less likely that it will be unable to assess tax due.

HMRC has said that comments on the draft legislation are welcome by 31 August.

Source: HMRC Policy paper: Extension of offshore time limits for the assessment of tax – dated 6 July 2018.


Direct ISA rate cut

(AF4, FA7, LP2, RO2)

Last month National Savings & Investments (NS&I) slashed the investment limit on their 1-year and 3-year Guaranteed Growth Bonds and Guaranteed Income Bonds from £1,000,000 per person per issue to £10,000 per person per issue. In the bulletin that we issued at the time, we suggested the reason could be because NS&I’s target for money-raising had been cut to £6bn in 2018/2019. It looks as if the same constraint has emerged again.

NS&I have announced that the interest rate on its Direct ISA will fall by 0.25% to 0.75% from 24 September 2018. Interestingly it says that “the decision to reduce the interest rate on Direct ISA was taken in order to deliver positive value for taxpayers”. It makes no comments why the ISA, currently paying 1% with instant access, needs to suffer a rate cut but Income Bonds, with virtually the same terms, need no revision.

The timing is strange. NS&I give at least two months’ written notice of ISA rate cuts, but its announcement is within three weeks of the Bank of England’s next interest rate decision (on 2 August). As of now, the money markets have put an 80% probability on the Old Lady opting for a rate 0.75%.

The NS&I ISA rate is uncompetitive now, before the cut. The market leaders cluster around 1.25% for instant access and, unlike NS&I, they all accept transfers in.

The logic of this NS&I move is hard to understand unless there has been a deliberate decision to switch off inflows, regardless of what happens to interest rates.

Source: NS&I Press Release: NS&I reduces interest rate on Direct ISA – dated 16 July 2018

The June inflation numbers

(AF4, FA7, LP2, RO2)

The CPI for June showed an annual rate of 2.4%, unchanged from the previous month. Across the month prices were flat, as they were between May 2017 and June 2017. The market consensus had been for an increase to a 2.6% annual rate, driven by rising oil and utility prices. The CPI/RPI gap widened by 0.1% to 1.0%, with the RPI annual rate rising from 3.3% to 3.4%. Over the month, the RPI was up 0.3%.

The ONS’s favoured CPIH index was also flat at 2.3%. The ONS notes the following significant factors across the month:


Transport: This category produced the largest upward contribution. Petrol prices rose by 2.7p per litre between May and June 2018 (to 128.0p per litre), the highest average price since September 2014. This compares with a 1.1p fall between the same two months of 2017 (to 115.3p). Similar moves applied to diesel prices. Within the broad transport group, the upward effect from motor fuels was partially offset by a small downward contribution from air fares, which rose between May and June this year by less than between the same two months a year ago.

Housing and household services: This category also had a large upward effect, with domestic gas and electricity prices rising between May and June this year compared with no change between the same two months a year ago.


Clothing and footwear: This category produced the largest downward effect, with prices of clothing falling by 2.3% between May and June this year compared with a fall of 1.1% between the same two months a year ago. Prices usually fall between May and June as the summer sales season begins, but the fall in 2018 was the largest

since 2012. The effect came mainly from men’s clothing.

Recreation and culture: There was also a large downward effect from this category, where prices fell by 0.4% between May and June this year compared with a smaller fall of 0.1% between the same two months a year ago. The main effect came from games, toys and hobbies, where prices fell this year by more than a year ago, particularly for computer games. However, as the ONS always reminds its readers, prices for games are heavily dependent on the composition of bestseller charts, often resulting in large overall price changes from month to month.

In three of the twelve broad CPI categories, annual inflation increased, while five categories posted a decline. Transport remains the highest category with an annual inflation rate now of 5.5%, not good news for a Chancellor allegedly contemplating the reinstatement of the fuel price escalator.

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) fell 0.2% to 1.9%, the weakest since March 2017. Goods inflation rose by 0.1% to 2.6%, while services inflation was flat at 2.3%.

Poor old Mark Carney is at risk of being the unreliable boyfriend again. The market has been anticipating that the Bank of England’s Quarterly Inflation Report, due on 2 August, would be accompanied by a 0.25% rise in base rates. Yesterday’s ONS data showing wages growing at the slowest level in six months despite record employment numbers and today’s flat CPI numbers both point to a greater chance of the next rate rise being kicked down the road to November. 

Source: ONS Statistical bulletin: Consumer price inflation, UK, June 2018 – dated 18 July 2018

PPF publishes annual report and accounts

(AF3, FA2, JO5, RO4, RO8)

The PPF have published their 2017/18 Report and Accounts and declared that the last year has seen a robust performance despite taking on pension schemes from employers including Carillion, Toys R Us and Hoover, with deficits totalling £1.2 billion - the highest total value to date.

Over the last year the PPF’s funding position has strengthened. The PPF has reported a continued growth in its reserves to £6.7 billion and an increase in its funding ratio to 122.8%. It has also reported a strong investment performance ahead of target, returning 2.8% on its assets despite significant market volatility.

The report covers many areas but the key measures detailed in the report for 2017/18 are:

  • Funding level of 122.8%, an increase of 1.2 % in the year
  • Investment return, 2.8% down from 3.6% in the previous year
  • Probability of meeting funding target, 91%, a decrease of 2 per cent
  • PPF levy collected, £537m, a decrease of £48 million
  • Operating costs, £67m, an increase of £7 million
  • PPF benefits paid, £725m, a 10 per cent increase
  • PPF reserves, £6.7b, an increase of £0.6 billion
  • Scheme deficits taken on, £1.2b
  • New members entered PPF assessment, 65,386
  • FAS members, 156,866
  • Assets under management, £30b

Cold calling ban delayed

(AF3, FA2, JO5, RO4, RO8)

The Financial Guidance & Claims bill became law on 10 May 2018.

Whilst its main intention is to create a one stop financial guidance service, the single financial guidance body, the new Act also includes rules around pensions guidance requirements, provides for a cap on PPI claims management charges, and paves the way for a ban on pensions cold calling. It also allows for a ban on unsolicited calls for direct marketing of claims management services.

We wrote about this in an earlier bulletin.

The Act includes a clause (21) requiring the Secretary of State for Work and Pensions to make regulations prohibiting unsolicited direct marketing relating to pensions.

The clause states that if the Secretary of State [who at the time of writing is still Esther McVey] has not made regulations before the end of June in any year they must publish a statement, by the end of July, explaining why regulations have not been made and setting a timetable for making the regulations. They must lay this statement before each House of Parliament.
Consequently, as the required regulations weren’t laid in June, the Government has now confirmed that the ban on pensions cold-calling will be delayed until the Autumn. This will follow a short consultation.

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.