PFS What's new bulletin - May I

TAXATION AND TRUSTS

 

The Casey Commission - terms of reference

(AF1, CF8, RO3)

 

The Government’s terms of reference for the commission to examine social care in England (aka the Casey Commission)

 

The timing that a Government chooses to make an announcement can give a clue as to how much it wants the communication to be heard. It is often the case that the final day before Parliament rises coincides with the release of a raft of long-awaited reports, not all of which are good for the departments involved. 

 

‘A good day to bury bad news’ was an earlier version of the Trump technique of ‘flooding the zone’, i.e. waiting for (or engineering) so much ‘news’ that the media cannot digest it all. Arguably that is what happened on Friday, when the Department of Health and Social Care (DHSC) published the terms of reference for the independent review of social care in England that had been announced in January. Parliament had already gone on its brief Early May Recess and there was a welter of local election results plus the first by-election of the current Parliament to digest. 

 

The terms of reference offer little new insight and run to not much more than 500 words. The fact that it has taken about four months to produce them will be seen by some as an indication of the urgency placed on the issue. As if to underline the lack of progress, the accompanying press release promises that “An easy read version of the terms of reference will be available soon.”   

 

The terms of reference confirm that the commission will have two phases: 

 

Phase 1 (medium term). This will “…set out the plan for how to implement a national care service…[and] should report in 2026.” Perhaps the point that the Government most wanted to bury was “The commission should produce tangible, pragmatic recommendations that can be implemented in a phased way over a decade.” That the new regime is not planned to be fully operational until 2036 suggests the Treasury is still worried about costs. The ten-year timescale could also explain why the original January statement that “The recommendations of this phase will be aligned with the government’s spending plans which will be set out at the Spending Review in the spring” has not made it into the terms of reference. 

 

It is easy to forget that the quasi-Dilnot framework originally created by the Care Act 2014 and subsequently regularly deferred had been due to start in October 2025. Rachel Reeves scrapped it last July as part of her £22bn black hole exercise, a move that received little attention given the focus on her culling of the Winter Fuel Allowance. 

 

Phase 2 (long term). This second element will review “how services must be organised … and discuss alternative models that could be considered in future to deliver a fair and affordable adult care system.” Interestingly, the list of “relevant other government departments” with which the commission must “also work closely” is headed by HM Treasury. 

 

Coincidentally, three days later, on Bank Holiday Monday, the House of Commons Health and Social Care Committee published a report entitled ‘Adult Social Care Reform: the cost of inaction’. In its summary, the report said: 

 

“Time and again, governments have stepped back from reform when faced with the cost. Too much emphasis is put on the cost of change and not enough consideration is given to the human and financial cost of no or incremental change. Without quantifying this cost, we believe decision makers, and the Treasury, fail to see how reform can enable positive outcomes and provide value for money, rather than be a drain on otherwise stretched resources.” 

 

 Comment 

“The commission’s work on medium-term reform will be a data-driven deep-dive into the current system” say the terms of reference. It will be surprising if that exercise does not end up with the same conclusions as the commission’s many discarded predecessors or, for that matter, those of the Health and Social Care Committee’s latest report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HMRC reduces late payment and repayment interest rates from 28 May 2025

(AF1, RO3)

 

The Bank of England Monetary Policy Committee announced on 8 May 2025 to reduce the Bank of England base rate to 4.25% from 4.5%. HMRC interest rates are linked to the Bank of England base rate. As a consequence of the change in the base rate, HMRC interest rates for late payment and repayment will reduce. These changes will come into effect on:

 

·         19 May 2025 for quarterly instalment payments;

·         28 May 2025 for non-quarterly instalments payments.

 

HMRC will decrease the current late payment interest rate applied to the main taxes and duties from 8.5% to 8.25%, effective from 28 May 2025.

 

The corporation tax pay and file interest rate has also been decreased in line with the general interest rate reduction to 8.25% from 28 May 2025.

 

The reduction applies to all other HMRC late payment rates, with an across the board decrease of 0.25% to 8.25%.

 

The exception is interest charged on underpaid quarterly corporation tax instalment payments, which decreases to 6.75% (from 7%) from 19 May 2025.

 

The repayment interest rate of 3.5% will decrease to 3.25%, from 28 May 2025.

 

Please see HMRC interest rates for late and early payments.

 

How HMRC interest rates are set

 

HMRC interest rates are set in legislation and are linked to the Bank of England base rate. Late payment interest is currently set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit - or ‘minimum floor’ - of 0.5%. The differential between late payment interest and repayment interest is in line with the policy of other tax authorities worldwide and compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits.

 

 

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT PLANNING

 

The venture capital market - new EIS and SEIS statistics published (AF4, FA7, LP2, RO2)

 

Bottom of Form

HMRC’s publication details the number of companies receiving investment through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), along with the amount of funds raised.

 

This release includes first estimates on funds raised for tax year 2023/24. Information about advance assurance requests (AAR) is also provided with first estimates for tax year 2024/25.

This release also provides the industrial and geographical breakdown of EIS and SEIS companies, the distribution of companies by the amount of funds raised, and the distribution of investors by the size of their investment.

 

The key headlines include:

 

EIS

In 2023/24, 3,780 companies raised a total of £1,575 million of funds under the EIS scheme. Funding has decreased by 20% from 2022/23, the previous year, when 4,245 companies raised £1,971 million.

 

Investment in 2023/24 saw a further reduction compared to the previous year’s, which was itself a decrease from the from the high levels of investment in 2021/2022.

 

Around £309 million of investment was raised by 1,010 new EIS companies in 2023/24.

In 2023/24, companies from the Information and Communication sector accounted for £551 million of investment (35% of all EIS investment).

 

Companies registered in London and the South East accounted for the largest proportion of investment, raising £997 million (63% of all EIS investment) in 2023/24.

 

The number of investors claiming income tax relief on self-assessment forms under the EIS has decreased, from 40,470 in 2022/23 to 35,150 in 2023/24.

 

The total investment on which tax relief was claimed under EIS decreased overall (12%) in 2023/24 compared with 2022/23 and there was a decrease in the total number of investors (13%). HMRC believes that this could be in part due to investors favouring SEIS investments following the investor limit expansion to benefit from the more generous tax relief rate.

In 2018/19, new limits were introduced for investments in Knowledge Investment Companies (KICs). These allow individuals to invest up to £2 million in a year if they are investing in a KIC. There were 50 investments of between £1 million and £2 million in 2023/24, contributing £74 million of investment. With the higher limit available, investments of over £500,000 comprised 17% of the total amount of EIS investment raised on which claims were made in 2023/24.

 

 

 

 

SEIS 

In 2023/24, 2,290 companies raised a total of £242 million of funds under the SEIS scheme. Funding in 2023/24 increased by 51% from 2022/23 when 1,835 companies raised £160 million. This is largely due to expansion of the limits of the scheme in April 2023 that allows companies to raise more investment and allows more companies to qualify.

 

Around 1,535 of the companies were raising funds under the SEIS scheme for the first time in 2023/24, representing £181 million of investment.

 

In 2023/24, companies from the Information and Communication sector accounted for £99 million (41% of all SEIS investment). The next three largest sectors (the Professional, Scientific and Technical, the Wholesale and Retail Trade, Repairs, the Manufacturing sectors) together account for 35% of investment. The proportion of SEIS investment by industry sector in 2023/24 has remained broadly consistent, compared to the previous year.

 

Most companies receive investments of over £50,000 through the SEIS (71% in 2023/24). In 2023/24, around 45% of companies raised amounts over £100,000, compared to 41% in 2022/23. The tax year 2023/24 is the first year since the expansion of the limits of the SEIS scheme and companies are able to raise over £150,000. In 2023/24, approximately 19% of companies raised over £150,000 and collectively they raised 38% of all investment through the scheme.

 

Companies registered in London and the South East accounted for the largest proportion of investment, raising £156 million (65% of SEIS investment) in 2023/24. This is similar to the previous year.

 

The SEIS underwent a large expansion effective from April 2023 where several limits that restricted the number of companies that qualified for the SEIS increased. As part of the expansion, the limit on the amount of investment that companies can raise increased from £150,000 to £250,000. HMRC believes that, combined, these limit relaxations are responsible for the sharp increase in the number of companies raising funds and the amount raised in 2023/24.

 

The number of new companies raising SEIS funds in tax year 2023/24 increased by around 5% from the previous year, and the amount raised by these companies also increased by 29% which is consistent with the expansion of the SEIS company investment limit to £250,000.

In 2023/24, 10,145 investors claimed income tax relief on self-assessment forms for the SEIS, compared to 8,245 investors in 2022/23. The amount of relief claimed also increased, by 47%, which is broadly consistent with the 51% decrease in funds raised by companies in 2023/24.

 

Most investors claiming the relief invested £10,000 or less into qualifying SEIS companies (51%). Investments of over £25,000 contributed 67% of the total amount of SEIS investment raised on which claims were made, which is broadly consistent with 2022/23 (66%). In 2023/24, approximately 3% of investors invested over £100,000 and collectively these investors represent approximately 22% of all investment on which income tax relief was claimed.

 

 

 

Social Investment Tax Relief (SITR) scheme 

2022/23 was the last year that enterprises could raise investment through SITR due to the closure of the scheme for new investment from April 2023.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PENSIONS

 

The end of the retirement smile?

(AF8, FA2, JO5, RO4)

New research, that has thrown an interesting light on spending patterns in retirement.

 

Three years ago, the Institute for Fiscal Studies published a briefing note looking at how the pattern of spending changes through retirement. Its key finding was “On average, retirees’ total household spending per person remains relatively constant in real terms through retirement, increasing slightly at ages up to around age 80 and remaining flat or falling thereafter.” This was at odds with a common view at the time of a retirement income ‘smile’, i.e. that a graph plotting spending over time would have a smile shape, high at the start and end of retirement and reaching a low point around the mid-point when activity has slowed, but care needs have not kicked in.

 

Retirement spending patterns have now been subjected to another review, produced by the University of Bath, Institute for Policy Research and LCP (Lane Clark & Peacock - primarily Steve Webb). Their report, “Downhill All the Way?” uses information from the Family Expenditure Survey, covering over 100,000 pensioners, surveyed across the 51-year period from 1968 to 2019. Its main findings are:

 

1. Declining spending patterns in retirement

The analysis reveals that across the entire sample, pensioners' real weekly spending tends to decline as they age. This trend persists across different income levels and is not solely attributable to reduced income. Even when real retirement income remains stable or increases, expenditure decreases, suggesting that factors beyond financial constraints influence spending behaviour.

 

2. Health and care needs

Health deterioration and the associated increase in care needs significantly impact spending patterns. As individuals age, a larger portion of their expenditure is allocated to health and care services, often leading to a reduction in discretionary spending. However, the report highlights that the future lifetime cost of care for individuals varies widely. Using data from the Dilnot report (and thus 2009/10 prices) the report says that care costs are highly skewed, with the median lifetime cost somewhere around £20,000, but some people paying £250,000+. According to the 2021 Census, there were 278,946 people aged 65 years and over living in care homes in England and Wales - about 2.5% of the 65+ population. Even at age 90 and above, the proportion in care homes was 21% for women and 10% for men.

 

3. Cohort differences in income and tenure

Comparing different cohorts of retirees, the study found variations in real income trajectories and housing tenure. Recent retirees tend to have higher real incomes, be less dependent on state pension and have a greater likelihood of owning their homes outright. The latter can help explain the different spending patterns of earlier cohorts who often had lower incomes, were more reliant on state pensions and lived in rented accommodation. Ironically the reliance on rented property is now on the increase among future generations of retirees.

 

 

4. Subgroup variations

Unsurprisingly, spending patterns differ among subgroups of pensioners. For instance, those living alone, renters, and individuals without private pension income often exhibit different expenditure trajectories compared to their counterparts. These differences underline the danger in looking at average numbers across the retired population.

 

5. Policy implications

The report’s authors suggest that retirement planning should account for the declining spending patterns observed among pensioners – primarily those who are homeowners. Such retirees may not require a constant real income throughout retirement, as traditional models often assume. Instead, the report calls for a more flexible approach that aligns with actual spending behaviours, which should lead to more efficient use of retirement resources and avoid too much being held back as a reserve for future expenditure.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A new survey highlights the sectors at risk of impoverished retirement

(AF8, FA2, JO5, RO4)

 

Scottish Widows has just published its 21^st annual retirement report, examining the state of retirement provision among the UK’s working age population. The report’s National Retirement Forecast (NRF), jointly produced with Frontier Economics, projects retirement outcomes for those aged 22 to 65 based on savings, behaviours and income sources, comparing expected income to potential living and housing costs in retirement. This year’s highlights were:

 

• Current savings behaviours. 61% of people are on track for at least a minimum lifestyle in retirement, which covers basic needs with limited flexibility. In 2025 monetary terms that equates to a net income of £14,800 for a single person and £23,100 for a couple, based on 3% inflation uprating of the 2024 Pension and Lifetime Savings Association (PLSA) minimum retirement standard. As usual, those figures exclude housing costs and will be higher for London.

 

• Risk of poverty. 39% (about 15.3 million people) are on track to fall short of the minimum retirement threshold, 1% up on 2024’s number and 4% higher than in 2023.

 

• Pension savings increases. While pension savings have increased since 2024, they have not risen enough to keep up with the cost of living.

 

• Median retirement income. The projected median (not average) retirement income has risen from £15.5k to £17.2k (including State Pension) since 2024. The adjusted PLSA targets for a moderately comfortable retirement are £32,200 (single) and £44,400 (couple).

 

• 27% are concerned they will have to work longer than they hoped to ensure they have sufficient retirement savings, while 15% do not ever expect to be able to retire.

 

• Of those saving at the minimum automatic enrolment contribution level:
• 48% are heading for a minimum retirement lifestyle;
• 35% are at risk of not being able to cover their basic needs in retirement.

 

Three groups that stand out as having the most unfavourable retirement prospects:

 

1. Generation Z (born between 1996 and 2010). The report sights competing financial goals make retirement savings a challenge for Gen Z. A quarter of people in their 20s prioritise saving for emergency expenses, while about one in eight say they are unable to save at all. The NRF projections showed that over 42% people in their 20s are at risk of poverty in retirement, while 23% would only be able to afford a minimum retirement lifestyle. 
   
   
2. Squeezed low to middle earners. The minimum automatic contribution basis, with its carve out for the first £6,240 of earnings, leaves this category vulnerable as a significant part of their earnings is effectively unpensioned. The research found that those in their 30s earning £20,000 - £35,000 are the mostly likely to contribute at the minimum. While there is legislation on the statute books that allows the lower earnings limit to be cut or even removed, after April’s National Insurance (NICs) rise, the Government is highly unlikely to make any changes that add further to employer costs. 
   
   
3. The self-employed. The UK’s 4.43m self-employed workers (December 2024-February 2025 data) have always been excluded from automatic enrolment and it shows. 51% are at risk of not being able to cover their basic needs in retirement with another 25% on track for a minimum retirement lifestyle. 23% not saving anything at all, effectively relying on the state pension alone. 

 

If anyone is in one of those three vulnerable groups, all is not lost. Larger contributions late on can fill the gap. But the longer they leave it, the larger they will have to be.