PFS What's new bulletin - August I

TAXATION AND TRUSTS

 

Office of the Public Guardian progress in reducing Power of Attorney registration delays

(AF1, JO2, RO3)

 

The Office of the Public Guardian annual reports, which show progress in reducing the clearance time for Power of Attorney registrations in England and Wales

 

For numerous years, the Office of the Public Guardians (OPGs) clearance times for registering a lasting power of attorney (LPA) have been considered unsatisfactory. This is due to several factors including the Covid-19 pandemic and staff shortages. In 2022/23, there was a 91-day average wait time to register and dispatch LPAs and enduing powers of attorney (EPAs).

Although there is still a way to go until wait times are back to their pre-pandemic levels of 40 days, the OPG annual reports show progress is being made in reducing them. In April 2023, the wait was 80 days and has since fallen to 62 days for LPAs and EPAs registered and dispatched in March 2024.

In August 2023, the OPG had a backlog of 288,100 of registrations to work through. As of March 2024, this backlog has also fallen by 48% to 149,400. Continuing growth in demand saw 1.37 million applications made in 2023/24, compared to 1 million the previous year. Despite this growth in demand, the OPG were able to achieve this reduction by expanding office space, recruiting and providing more training to their staff. There are now over 8 million LPAs and EPAs on the register.

Correlating with the increasing demand for LPAs, the OPG has also seen an increase in demand for investigations, with a growth of the investigation case load to 60,500 cases. Investigations into abuse of LPAs rose by 28% resulting in the OPG failing to meet its targets for completing investigations within a period of 70 working days.

The OPG continue to work on supervising deputies, which has now grown to over 60,500 clients. Even with this growth, the average time in obtaining annual reports from the deputies it supervises is currently 33 working days, meeting their target of 40 working days. The average wait time to review deputies’ annual reports is currently 11 working days, also meeting their target of 15 working days.

A new contact centre has been opened and the OPG’s phone line operating hours extended, resulting in complaint backlogs being cleared and more prompt complaint replies. Although this has improved, the percentage of fully resolved complaints within 10 working days is still only 69% when the target is 90%.

In a published statement, Amy Holmes, Public Guardian and Chief Executive says: ‘We are proud to be supporting more people and serving more customers than ever before’. After addressing flaws around the customer service provided, Holmes goes onto to say: ‘While it is right to recognise the progress made in improving the customer experience, there are areas of concern and challenges we still need to overcome’.

 

 

Changes to the taxation of non-UK domiciled individuals from April 2025 - the Government's initial plans

(AF1, JO2, RO3)

 

The new Government's plans for the replacement of the non-dom tax rules with a new residence-based regime. Further details will be provided at the 30 October Budget.

When the Finance (No.2) Act 2024 was passed into law on 24 May, legislating for tax changes announced at the Spring 2024 Budget, the non-dom reforms, announced by the previous Government in that Budget, were effectively abandoned as they were still at consultation stage, and the Finance (No.2) Bill (now Act) 2024 was stripped of the relevant clauses in the “wash up” in which it was hurried through the legislative process prior to the prorogation of Parliament ahead of the election.

On 29 July, the new Government published its Policy Paper setting out some information about its own, promised, non-dom reforms.

It will implement a new residence-based regime, which will be essentially the same as the four-year foreign income and gains (FIG) regime announced by the previous Government at the Spring Budget. However, it will remove preferential tax treatment based on domicile status for all new FIGs that arise from 6 April 2025. Its residence-based regime will provide 100% relief on FIGs for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in any of the ten consecutive years prior to their arrival. From 6 April 2025, the protection from tax on income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the four-year FIG regime.

The new Government says that it intends to conduct a review of offshore anti-avoidance legislation, including the Transfer of Assets Abroad and Settlements legislation, to modernise the rules and ensure they are fit for purpose. The intention for this review will be to “remove ambiguity and uncertainty in the legislation, make the rules simpler to apply in practice and ensure these anti-avoidance provisions are effective”. Further details on the review will be provided in due course. The Policy Paper says that it is not anticipated that this review will result in any changes before the start of the 2026/27 tax year.

A form of Overseas Workday Relief (OWR) will be retained. Officials will engage with stakeholders on the design principles for this tax relief and further details will be confirmed at the Budget on 30 October.

As expected, the policy announced by the previous Government, providing a 50% reduction in foreign income subject to tax for individuals who lose access to the remittance basis in the first year of the new regime, will not be introduced.

UK resident individuals who are ineligible for the four-year FIG regime (or who choose not to make a claim for a tax year) will be subject to capital gains tax (CGT) on foreign gains in the normal way. Transitionally, for CGT purposes, current and past remittance basis users will be able to rebase foreign capital assets they hold to their value at the rebasing date when they dispose of them. The Government says that it is considering the appropriate rebasing date and will set this out at the Budget.

Any FIG that arose before 6 April 2025, while an individual was taxed under the remittance basis, will continue to be taxed when remitted to the UK, as is the case under the current rules. This includes remittances of pre-6 April 2025 FIGs for those who are eligible for the new four-year FIG regime.

A new Temporary Repatriation Facility (TRF) will be available for individuals who have been taxed on the remittance basis. Individuals that have previously claimed the remittance basis will be able to remit FIGs that arose prior to 6 April 2025 and pay a reduced tax rate on the remittance for a limited time period after the remittance basis has ended. The Policy Paper says that the rate and the length of time that the TRF will be available will be set to make use as attractive as possible. The Government says that it is also exploring ways to expand the scope of the TRF, including to stockpiled income and gains within overseas structures, and will confirm further details at the Budget.

 

New residence-based regime for inheritance tax (IHT)

The Government says that it intends to replace the current domicile-based IHT system with a new residence-based system from 6 April 2025.This will affect the scope of property brought into UK IHT for individuals and trusts. The Government says that it envisages that the basic test for whether non-UK assets are in scope for IHT from 6 April 2025 will be whether a person has been resident in the UK for ten years prior to the tax year in which the chargeable event (including death) arises, with provision to keep a person in scope for ten years after leaving the UK. The Government will engage further with stakeholders on the operation of the new test, so that any refinements can be considered fully. IHT charges arising on deaths occurring before 6 April 2025 will be unaffected by these changes and will be charged according to the existing rules.

The Government will end the use of Excluded Property Trusts to keep assets out of the scope of IHT. It intends to change the way IHT is charged on non-UK assets which are held in such trusts. However, the Government says that it recognises that trusts will already have been established and structured to reflect the current rules, so is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements, while ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes. Confirmation of these new rules and their detailed application, including transitional arrangements for affected settlors, will be published at the Budget, following external engagement. 

The Government will not carry out a formal policy consultation on moving to a residence-based system for IHT. Instead, it will review stakeholder feedback provided following the Spring Budget and officials will carry out further external engagement over the summer on IHT policy design.

 

Next steps

Further details on the separate engagement sessions on IHT and OWR, will be published on gov.uk in due course. To assist in obtaining technical comments on the draft legislative provisions, the Government will share plans to engage on gov.uk in due course.

Comment

Under the previous Government’s proposals, the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 would remain excluded property. This might have presented a window of opportunity for non-UK domiciles who have currently been living in the UK for fewer than 15 years or who are planning to move to the UK in the imminent future and remain UK resident for longer than four tax years, to set up an excluded property trust, as these trusts would continue to be outside the scope of IHT. 

However, the new Government says that it is considering how these IHT changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements, while ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes. Confirmation of these new rules and their detailed application, including transitional arrangements for affected settlors, will not, however, be published until 30 October.

This means that advisers and clients may not have all the information that they would like until 30 October at the earliest, making any decisions over existing excluded property trusts, and any potential new excluded property trusts, somewhat difficult. However, by being able to demonstrate that there are such unknowns, and being able to explain the changes quickly as more information becomes available, that will at least mean that your clients will be in the best position to plan when that point is reached.

 

HMRC reduces late payment and repayment interest rates

(AF1, RO3)

Following the latest reduction in the base rate recently announced by the Bank of England, HMRC has decreased the current late payment interest rate applied to the main taxes and duties from 7.75% to 7.5%, effective from 20 August 2024.

The corporation tax pay and file interest rate has also been decreased in line with the general interest rate reduction to 7.5% from 20 August 2024.

The reduction applies to all other HMRC late payment rates, with an across the board decrease of 0.25% to 7.5%.

The exception is interest charged on underpaid quarterly corporation tax instalment payments, which decreases to 6% (from 6.25%) from 12 August 2024.

HMRC has also confirmed that the repayment interest rate of 4.25% will decrease to 4%, from 20 August 2024.

You can see the full range of rates here.

 

INVESTMENT PLANNING

Bank of England Money and Credit - June 2024

(ER1, LP2, RO7)

 

The Bank of England (BoE) has published its latest Money and Credit report. Some of the main highlights include:

 

• Households deposited, on net, £5.3bn with banks and building societies in May. Within this, an additional £3.4bn was invested into ISAs in June. Households also deposited into interest-bearing sight, interest-bearing time and non-interest-bearing sight deposits £2.1bn, £1.5bn and £0.6bn. (Time deposits pay a fixed rate of interest until a given maturity date. Funds placed in a time deposit usually cannot be withdrawn prior to maturity or they can perhaps only be withdrawn with advanced notice and/or by having a penalty assessed. Sight deposits are deposits which can be withdrawn either without notice, or after a very short notice period.)

 

• The effective interest rate paid on individuals’ new time deposits with banks and building societies was broadly flat at 4.44% in June, from 4.43% in May. The effective rate on the outstanding stock of time deposits increased by 4 basis points, from 3.92% in May to 3.96% in June. And the effective rate on stock sight deposits decreased by 3 basis points, from 2.14% in May to 2.11% in June.

 

• Individuals borrowed, on net, £2.7bn of mortgage debt in June compared to £1.3bn in May. The annual growth rate for net mortgage lending rose to 0.5% in June from 0.3% in May, continuing the trend seen in previous months. Gross lending decreased from £22.6bn in May to £20.8bn in June, whilst gross repayments decreased from £20.3bn in May to £18.7bn in June.

 

• Net mortgage approvals for house purchases (that is, approvals net of cancellations), which is an indicator of future borrowing, remained at broadly the same level in June, at 60,000, as in May. And, net approvals for remortgaging (which only capture remortgaging with a different lender) decreased from 29,300 in May to 27,500 in June.

 

• The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 3 basis points, from 4.79% in May to 4.82% in June. The rate on the outstanding stock of mortgages increased by 4 basis points, from 3.61% in May to 3.65% in June.  

 

• Net borrowing on consumer credit by individuals dipped slightly to £1.2bn in June, from £1.5bn in May. This was driven by net borrowing through credit cards, which fell slightly from £0.6bn in May to £0.5bn in June, and lower net borrowing through other forms of consumer credit (such as car dealership finance and personal loans), which decreased from £0.9bn in May to £0.7bn in June. The annual growth rate for all consumer credit decreased from 8.4% in May to0% in June. The annual growth rate for credit card borrowing fell to 10.5% in June, from 10.8% in May, and other forms of consumer credit decreased from 7.3% in May to 7.0% in June.

• The effective interest rate on interest-charging overdrafts decreased by 23 basis points, from 22.58% in May to 22.35% in June. The effective rate on new personal loans to individuals remained unchanged at 8.93% in June. The effective rate on interest-bearing credit cards decreased by 37 basis points during this period, from 21.65% to 21.28%.

 

You can read the full BoE Money and Credit Statistical Release here.

 

 

NS&I rate changes

(AF4, FA7, LP2, RO2)

 

National Savings & Investments (NS&I) rates. It has increased most of its Guaranteed Growth Bond and Guaranteed Income Bond rates and placed two-year and five-year bonds on general sale

 

NS&I has announced increased interest rates for its three-year Guaranteed Growth Bonds (GGBs) and Guaranteed Income Bonds (GIBs). It has also raised rates on the two-year and five-year version of these bonds and made them publicly available, rather than restricted to existing holders wishing to reinvest:

 

Product	Term	Old rate	New rate from 6 August
Guaranteed Growth Bonds
	2 years	4.25%* gross/AER	4.60% gross/AER
	3 years	4.15% gross/AER	4.35% gross/AER
	5 years	3.90%*gross/AER	4.10% gross/AER
Guaranteed Income Bonds
	2 years	4.17% gross*/4.25% AER	4.50% gross/4.60% AER
	3 years	4.07% gross/4.15% AER	4.26% gross/4.35% AER
	5 years	3.83% gross*/3.90% AER	4.02% gross/4.10% AER

* Only available for reinvestment

 

Before NS&I’s announcement the best rates in the market according to Moneyfacts were 5.00% AER for two years, 4.76% AER for three years and 4.55% AER for five years.

The nearest equivalent gilts, Treasury 1.5% 2026 (maturing 22 July 2026), Treasury 1.25% 2027 (maturing 22 July 2027), and Treasury 4.125% 2029 (maturing 22 July 2029) all have a gross redemption yield of around 3.8%.

 

For higher and additional rate taxpayers, Treasury 0.375% 2026 (maturing 22 October 2026), Treasury 1.25% 2027 (maturing 22 July 2027), and Treasury 0.875% 2029 (maturing 22 October 2029), all offer better net returns than the NS&I bonds because they are priced comfortably below par and thus boosted by tax-free capital gains.

 

Comment

 

It is surprising that NS&I should increase fixed rates now, but this may be an indication that it is finding money-raising difficult – its 2024/25 funding target is £9bn (±£4bn). Oddly, the three-year Green Savings Bond has not seen a rate change and now looks distinctly uncompetitive at 2.95% AER – a ‘greenium’, if ever there was one.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PENSIONS

 

HMRC Pensions Scheme Newsletter 161 – August 2024

(AF8, FA2, JO5, RO4)

 

HMRC Pension scheme newsletter 161 covers the following:

 

• lifetime allowance abolition;
• relief at source;
• pension flexibility data;
• qualifying recognised overseas pension schemes transfer data;
• Managing pension schemes service.

 

Areas of particular interest:

 

Lifetime allowance abolition

 

HMRC confirm that the Government plans to introduce the necessary regulations to correct the technical errors in the legislation that abolished the lifetime allowance as soon as the parliamentary timetable permits.

 

The draft legislation is currently out for consultation with the deadline of 14 August.

 

Pension flexibility data

 

From 1 April 2024 to 30 June 2024, HMRC processed:

 

• P55 — 11,449 forms
• P53Z — 3,612 forms
• P50Z — 1,018 forms

 

The total value of income tax repaid was £56,925,219 and so an average repayment of around £3,500 per claim.

 

Qualifying recognised overseas pensions schemes transfer data.

 

The latest statistics show a significant increase in the number and value of schemes transferring overseas.  In 2023 to 2024 there were 7,100 transfers (up from 3,300 in the previous year) worth a total of £1,140,000,000 (up from £680,000,000 in the previous year).  

 

 

 

 

 

 

 

 

 

 

HMRC: Private pension statistics

(AF8, FA2, JO5, RO4)

 

HMRC has published the latest update to its Private Pension Statistics covering the 2022/23. These statistics provide:

 

• the number of members and value of individual contributions to personal pensions
• the estimated cost of pension income tax and National Insurance contribution (NIC) relief
• statistics on annual allowance and lifetime allowance charges
• statistics on taxable flexible payments from pensions

 

Some of the main highlights include:

 

• The total net cost of pension tax and National Insurance Contributions relief hit £48.7 billion in 2022/23, up slightly from £47.6 billion a year earlier,
• Nearly a third of the gross cost is National Insurance relief on employer contributions,
• £5.5 billion of the annual cost of employee tax relief for 2022/23 relates to ‘net pay’ schemes – much of which will be public sector defined benefit (DB) contributions – with a further £5.8 billion attributed to employee salary sacrifice arrangements
• Any move to introduce a flat rate of pension tax relief below 40%, as some have suggested, would likely result in a tax charge being applied to higher-rate taxpayers in DB schemes – including those working across the public sector – and lead to questions over the future of salary sacrifice.

 

 

HMRC: Simple Assessment guide for pensioners

(AF8, FA2, JO5, RO4)

 

HMRC have published a guide for explaining how the concept of Simple Assessments will work for individuals have a tax liability that cannot be collected under PAYE. Typically, this will be where an individual:

 

• in receipt of a State Pension exceeds their Personal Allowance, or
• Their State Pension and other income, such as interest or dividends, create a liability, and

 

they either the have no, or insufficient, sources of income on which PAYE can be operated to collect the income tax due.

 

HMRC has issued a letter to various trade bodies and tax publishers asking for their help in explaining Simple Assessment. It states that over the next six weeks, HMRC will be writing to about 560,000 taxpayers, who have taxable income but who are not in self assessment, or for whom they cannot automatically deduct the tax owed using a PAYE tax code. The letter will set out the tax liability and how it has arisen and will then go on to say that taxpayers will need to pay what they owe using simple assessment.

 

 

New superfunds guidance sets out TPR’s capital release expectations to boost market innovation in interest of savers

(AF8, FA2, JO5, RO4)

 

The Pensions Regulator (TPR) has published updated DB Superfund Guidance setting out their clear expectations for the release of capital from defined benefit (DB) superfunds.

 

Evidently, TPR has listened closely to the industry regarding capital release: the position in the updated guidance supports innovation, while retaining protection for scheme members.

 

The DB superfunds guidance now states capital can be released up to twice a year and when meeting a specific trigger and safeguards.

 

TPR has also listened to industry when considering how superfunds and capital backed arrangements (CBA) could play a role in the case of schemes whose employers have become insolvent. Here trustees may decide to enter into a CBA or superfund on a reduced capital adequacy basis where the alternative is for the scheme to buy out on less than full benefits.

 

Nina Blackett, Interim Executive Director of Strategy, Policy and Analysis, said that: “We expect superfunds and capital backed arrangements to increase as the DB market consolidates. We strongly support innovation in the interests of savers, and in updating the guidance we have worked closely with industry. The introduction of capital release will make it more attractive for providers to enter the market because it will enable surplus above a healthy funding level to be taken ahead of buyout. The inclusion of superfunds in the new Pension Schemes Bill should provide confidence to potential market participants.”

 

 

Too many pension schemes focused on minimum compliance with ESG duties, says TPR

(AF8, FA2, JO5, RO4)

 

The Pensions Regulator (TPR) has published its Market Oversight: ESG report setting out findings from their review of how pension trustees are complying with wider ESG duties.

 

According to TPR’s report, a check of around 3,500 scheme returns from defined contribution, defined benefit and hybrid schemes found only around 1% failed to provide weblinks to relevant ESG disclosures – statements of investment principles (SIPs) and implementation statements (IS). And only approximately 2% of those links could not be accessed by TPR staff. Working links were requested from all schemes that provided one that could not be accessed.

 

Machine-reading techniques, supplemented by TPR staff, were used to review SIPs and IS from around 375 schemes. TPR also carried out an in-depth review of SIPs and IS provided by around 50 schemes.

 

The report also said that:

 

• too many smaller schemes opted for minimum compliance with ESG aspects of SIPs and IS.
• if trustees believe they lack the expertise or scheme governance scale to be able manage financially material ESG risks effectively, they should consider whether consolidating their schemes could improve the way in which these risks are managed for their members.
• TPR wants to see more evidence of trustee oversight where management of financially material risks, engagement and voting had been delegated to an investment manager.

 

Pooled funds

Where schemes are invested in pooled funds, TPR said that there are still options for trustees to show active engagement and advocate for their scheme’s policies.

 

These include requesting that asset managers vote on issues in a way consistent with the trustees’ own stewardship priorities or joining collaborative investor initiatives.

 

Mark added: “Trustees must provide appropriate detail in their reporting and show they are influencing and taking ownership of ESG considerations, even where responsibilities are delegated, or where the scheme is invested in pooled funds.

 

“As ESG disclosure reporting requirements are likely to continue to expand, trustees may wish to voluntarily become early adopters of reporting requirements relating to, for example, nature, biodiversity and social factors.”