PFS What's new bulletin - June II
UPDATE from 14 June 2024 to 27 June 2024
TAXATION AND TRUSTS
HMRC targets taxpayers busting £1m BADR limit
(AF1, RO3)
In the latest anti-avoidance campaign, HMRC’s wealth team has sent letters to taxpayers (and, where applicable, their agents) whose business asset disposal relief (BADR) claims exceed lifetime limit.
HMRC has identified taxpayers who have exceeded the £1m lifetime limit but still made claims for BADR, previously known as entrepreneur's relief, in their 2022-23 tax returns.
The wealth team has rooted out taxpayers who exceeded the lifetime limit in the 2022-23 tax year, or had already done so in an earlier tax year.
The limit was reduced from £10m to £1m on 11 March 2020. Taxpayers who have already claimed £1m or more before this date have already reached their limit, meaning ‘you will not be able to claim any future BADR’, HMRC said.
The letter states: ‘Our records show that you’ve exceeded the lifetime limit of £1m prior to submitting your latest self assessment return.
‘This means your claim is unlikely to be accepted and you’ll need to pay tax on the capital gain at the normal capital gains tax rates.’
Recipients are being told to amend or remove the BADR claim within 30 days of the date of the letter. This has to be done by amending the 2022-23 self assessment tax return to remove the claim.
HMRC warned: ‘Due to the change to your self assessment return, it’s likely that additional tax will be due. If you do owe us tax, we’ll charge interest on any tax that’s paid late.’
However, it is worth noting that HMRC’s approach is a “blunderbuss” one, on the basis that if you “chuck enough mud at the wall some will stick” as HMRC has admitted when deciding if the £1m threshold has been exceeded, information on the £1m limit was captured from the tax returns with no focus on capital losses that may have reduced the capital gain and left the £1m limit intact.
HMRC has set up a dedicated phone line to handle enquiries about the BADR letters which will be open for two months, but stressed that ‘we can’t correct your tax return over the phone or help you work out if you owe capital gains tax’. The phone hotline will be open between 9am and 5pm Monday to Friday on 03000579222. Email enquiries must be sent to responseteam3@hmrc.gov.uk.
Total tax receipts for April 2024 to May 2024 higher than the same period last year
(AF1, RO3)
The latest tax receipts for April 2024 to May 2024 have been published. The total receipts are £132.8 billion, which is £3.6 billion higher than the same period last year.
The overall cash receipts were higher mainly from income tax, capital gains tax and National Insurance contributions (NICs) (£2.0 billion), business taxes (£1.1 billion) and stamp taxes (£0.5 billion). Obviously there are peaks in July and January which reflect the bi-annual due dates for self-assessment. There are also peaks in January to April which typically capture PAYE bonus-related receipts, particularly from the financial sector.
In percentage terms, receipts were higher for stamps taxes (19%), business taxes (17%) and inheritance tax.
INVESTMENT PLANNING
May inflation numbers
(AF4, FA7, LP2, RO2)
The UK CPI inflation rate for the May 2023 was 2.0%, 0.3% down from April and back on target for the first time since July 2021.
In a rare piece of good news for Rishi Sunak, the CPI annual rate for May was 2.0%, down 0.3% from April, dead on Bank of England target and in line with the Reuters consensus forecast. UK annual inflation is now comfortably below that of the Eurozone (2.6% for May) and USA (3.3% in May).
The monthly UK CPI reading was up 0.3% from April. The CPI/RPI gap was unchanged at 1.0% with the RPI annual rate also falling by 0.3% to 3.0%. Over the month the RPI index rose by 0.3%.
The ONS’s favoured CPIH index dropped 0.2% to an annual 2.8%, leaving it an unusually high 0.8% above the CPI. A large part of that excess is due to the owner occupiers’ housing (OOH) category, which has a 16.5% weighting in the CPIH but is absent from the CPI. The OOH is up 6.7% over the past year.
The ONS attributed the reduced level CPIH inflation to three main downward drivers and one main upward driver:
Main Downward drivers
Food and non-alcoholic beverages Prices rose by 1.7% in the year to May 2024, down from 2.9% in the year to April. The May figure is the lowest annual rate since October 2021. The rate has now eased for fourteen consecutive months from its March 2023 high of 19.2%.
Prices fell by 0.3% between April and May 2024, compared with a monthly rise of 0.9% a year ago. Prices have been relatively high but stable since early summer 2023, compared with sharp rises over the previous 12 months. Annual rates eased in nine of the eleven food and non-alcoholic beverages classes, the exceptions being oils and fats, and milk, cheese and eggs.
Recreation and culture Prices rose by 0.2% between April and May this year, compared with a larger monthly rise of 0.7% a year ago. The annual rate eased to 4.1% in the year to May 2024, down from 4.6% in the year to April. The annual rate in May was equalled in February 2023, and the rate was last lower in January 2022, when it was 2.9%.
The easing in the annual rate between April and May 2024 was the result of small downward effects from a variety of the more detailed classes. The largest came from pets and related products, package holidays, books, and cultural services. Prices of package holidays and cultural services rose this year by less than a year ago.
Furniture and household goods Prices rose by 0.2% between April and May 2024, compared with a larger monthly rise of 1.1% a year ago. On an annual basis, prices fell by 1.8% in the year to May, compared with a fall of 0.9% in the year to April. The annual rate in May 2024 was the lowest since December 2000.
The main contribution to the easing in the rate came from electrical appliances, where prices fell by 2.5% in the month to May 2024, compared with a monthly rise of 2.2% in May 2023. Prices of most products in this category fell this year but rose a year ago.
Main upward driver
Transport Overall prices rose by 0.3% in the year to May 2024, compared with a fall of 0.1% in the year to April, the first annual price rise since October 2023. On a monthly basis, prices rose by 0.7% this year, compared with 0.3% a year ago. The increase in the annual rate was the result of upward effects from motor fuels and, to a lesser extent, transport services, partially offset by lower second-hand car prices.
Eight of the twelve broad CPI divisions saw annual inflation decrease, while three rose and one was unchanged. The category with highest annual inflation rate remains alcoholic beverages and tobacco (3.9% of the Index) which recorded an 7.8% annual increase. Nine divisions (all bar Alcoholic Beverages and Tobacco, Health and Restaurants and Hotels), accounting in total for 79% of the Index, posted an annual inflation rate below 5.0%. Four (Housing, Water, Electricity, Gas and Other Fuels; Furniture; Food and non-alcoholic beverages; Household Equipment and Maintenance; and Transport) were less than 2.0%.
Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) fell 0.4% to 3.5% again in line with consensus expectations. Goods inflation in the UK fell 0.5% to -1.3%, while services inflation continued to be sticky, down 0.2% at 5.7%.
Producer Price Inflation input prices fell by 0.1% in the 12 months to May 2024, against a revised fall of 1.4% in the year to April 2024. The corresponding output (factory gate) figures saw a 1.7% annual rise against a previous revised 1.1% increase. As last month, he ONS notes that ‘Based on the provisional data, the annual inflation rates for both input and output PPI are at their highest levels since May 2023.’
Comment
The Bank of England will announce its latest interest rate decision on Thursday. While CPI hitting target will be good news for the Bank, it will still be concerned about annual earnings growth which hit 6.0% (ex-bonuses) for February-April 2024 according to the ONS report of last week. That rate of pay increase, which is reflected in the 5.7% services inflation rate, is not compatible with 2% inflation. However, in the middle of an election do not expect to hear many calls for pay increases to be lowered.
PENSIONS
IFS: Pensions: five key decisions for the next government
(AF8, FA2, JO5, RO4)
The Institute for Fiscal Studies (IFS) had published a report, in partnership with abrdn Financial Fairness Trust, entitled: “Pensions: five key decisions for the next government” which identifies five key decisions on pensions that should be taken by the next Government:
1) |
Decide whether and how to provide more support to those who struggle to work up to state pension age, while considering the effects on work incentives and government spending. This is urgent as the state pension age will rise from 66 to 67 between 2026 and 2028. The next government also cannot delay a decision on whether to accept the previous recommendation to bring forward the legislated increase in the state pension age to 68.
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2) |
Put in place a long-term plan for the level of the state pension. Current forecasts suggest that maintaining the triple lock will cost around £1.5 billion per year by 2029–30 relative to earnings indexation. At some point whoever forms the next government needs to decide on the appropriate level of the state pension and then to increase it to keep up with earnings growth in the long run, but also at least as fast as inflation every year.
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3) |
Decide whether to make use of new legislation that would increase minimum workplace pension contributions. If they do, they need to consider how to help low earners adjust to lower take-home pay. Going ahead would mean additional pension contributions of £499 per year (including from the employer and tax relief) for employees with minimum contributions (8% of qualifying pay). For someone earning £10,000, this would lead to a reduction in take-home pay of at least 2.5%, and likely more depending on how much wages adjust downwards given the policy.
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4) |
Decide how to address the problem of low pension saving among the self-employed. Only around 20% of self-employed workers participate in a private pension, down from 50% in 1998. One option could be to integrate pension saving for the self-employed into the Self Assessment tax system.
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5) |
Develop and implement policies to help people draw on their private pension wealth through retirement. Increasing numbers are approaching retirement with significant defined contribution pension wealth, which they can access as they wish. They face difficult, high-stakes financial decisions throughout retirement that could lead to them running out of private pension wealth – or drawing on it too cautiously. One option could be requiring pension schemes to provide default options, to help especially those who have low understanding of and/or engagement with pensions. |
People’s Partnership outlines its plan for a fairer deal for pension savers
(AF8, FA2, JO5, RO4)
The People's Partnership, one of the UK’s leading providers of workplace pensions has issued a Press Release outlining what it thinks the nation’s future political leaders can do to make retirement saving fairer for savers. The not-for-profit provider is calling for political leaders to commit to:
- A target retirement income. Too many people are not on track for an adequate pension in retirement. Government should set out target pension incomes, to be achieved through a combination of the state pension and workplace pensions saving. Without clarity over what the combination of state pension and workplace pension saving should achieve, it’s impossible to say what the level of either should be. Clarity is critical to helping UK savers plan for their future.
- Competition should work in the interests of the saver. People’s Partnership supports measures to help judge whether or not pensions offer value for money. Regulatory policy should encourage healthy competition on the things that drive good outcomes for consumers. Too often competition is opaque and unhealthy, focused on brand and marketing. There should be transparent and standardised value for money metrics that enable anyone to make objective judgements about pensions and these should cover the whole market. These should focus on the outcomes that savers are likely to receive from pension saving. They should be front and centre on pensions dashboards.
- Pension market reform. Building scale pension schemes should be a priority. Large, well governed schemes will offer economies of scale. They should offer better value to savers and be able to invest in a wider range of asset classes, helping deliver politicians’ ambition for pension schemes to invest more in UK illiquid assets. Larger schemes, held to a new quality standard should be enabled to sweep up the small pots that have proliferated as a result of automatic enrolment. These schemes should be the core of a more consumer-oriented market.
- Economic role of pension funds. Politicians of all parties are right to focus on the role of pension funds as investors in the UK economy. This focus should not come at the expense of savers, who need the best possible return from their invested pension savings. Any policy to increase UK pension funds’ domestic investment should place the interests of savers at its heart.
HMRC: Public service pensions remedy newsletter
(AF8, FA2, JO5, RO4)
HMRC has issued its Public service pensions remedy newsletter for June 2024. The main point of note is that it has pulled its “Calculate your public service pension adjustment service” tool temporarily due to a technical issue. In the meantime, HMRC has announced that then the system relaunches, it will include the following additional functionality:
- Removal of the requirement to enter the original pension input amounts for the remedy period, 6 April 2015 to 5 April 2022.
- Addition of “Income sub-journeys” which will ask individuals additional questions for the tool to calculate their “net income” and “threshold income”, where this is not known by the individual.
- Addition of a “Save and Return” functionality. This will allow individuals to save the information partway through the process and then to return to it at a later date,
- The addition of a “Triage Service” to help individuals to decide if they need to use the full calculator and submission service or not.
- The addition of a new calculation results page as previously individuals had given feedback that the previous output was confusing.
HMRC intends to reopen the service in mid-July including the amendments 1) to 3) with 4) & 5) being released during September.
SMF: Pensions: a vision for the future
(AF8, FA2, JO5, RO4)
The Social Market Foundation (SMF) has published a report entitled: Pensions: a vision for the future. The report considers the pensions landscape is complex and unsustainable in its current form and proposes a vision for a simpler, fairer and more sustainable pensions landscape, looking at the three pillars of the:
- State Pension,
- Workplace provision, and
- Personal provision,
considering them as a single coherent framework.
The report goes on to consider:
1) |
Principles for pensions reform, looking at: |
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i) |
The pensions system should be designed to ensure a dignified retirement for all and embrace accountability, fairness, simplicity, sustainability and transparency. |
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ii) |
When reviewing the state, workplace and private sources of retirement income, they should be considered as a single coherent framework. Policy should be made systematically, not piecemeal. |
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iii) |
State provision should be long-term financially sustainable, reflecting the costs associated with rising life expectancy and the economic consequences of an ageing population. |
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iv) |
Providers of private and workplace retirement saving products should be consumer-focused; their customers’ interests should not be subordinate to the industry’s. |
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v) |
Personalisation encourages engagement with saving, and hence awareness about the pension system. Workplace-derived savings should be considered as an extension of private provision – they should be portable and as personal as a bank account. |
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vi) |
Tax relief on pensions is inevitably regressive, with nearly 60% going towards higher and additional rate taxpayers. This unjust structural prejudice against the low paid and women should be rectified.
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2) |
The proposed framework, looking at |
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i) |
A larger, but later, Senior Citizen’s Pension, supplemented by Income Support (being replaced by Universal Credit by end-2024) extended beyond State Pension Age |
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ii) |
‘Auto-protection’ for defined contribution pot decumulation with two distinct components introduced by default with the ability to opt out: |
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iii) |
‘Auto-drawdown’ of between 4% and 6% of pension pot assets per annum over a finite 15-year period from ages 60 to 75. |
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iv) |
‘Auto-annuitisation’ of residual pots at the age of 75 to collectively hedge individuals’ exposure to risks of longevity and remove later-life exposure to investment market and inflation risks. |
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v) |
Pay bonuses, instead of tax relief, on all contributions to pension pots, to help generate a broad-based savings culture rather than one targeted towards higher earners |
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vi) |
An enhanced automatic enrolment framework to broaden participation, with members of workplace pension schemes given the right to choose the scheme into which their contributions are paid and with new Workplace and Self-Employed ISAs.
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HMRC publishes transitional tax-free amount certificate tool
(AF8, FA2, JO5, RO4)
HMRC has published a tool to help individuals (or personal representatives if the member has died) to check eligibility for a “transitional tax-free amount certificate”. Such certificates are potentially beneficial for those who started to take retirement benefits before 6 April 2024 as the certificate may result in their having higher available lump sum and lump sum and death benefit allowances as at 6 April 2024 than under the ‘standard’ approach which makes assumptions as to lump sums taken when benefits were put into payment prior to this date.
Once the inputs to the tool have all been entered, and assuming it is beneficial for an election to be made, the tools sets out the next steps that should be taken.
What’s Included:
From broking to underwriting- you’ll gain a foundational knowledge of all things insurance. You’ll discover what roles are available and which skills you will need to succeed. You’ll get a real sense of the various pathways available in this diverse profession. You’ll complete a series of quizzes and activities and (virtually) attend live webinars to help build your understanding of the profession.
This programme is open to anyone aged 13+, and is free to join.
Look out for the new Personal Finance programme, coming soon!