The latest stories in the news for February 2018, which may be of interest to our professional connections only.
LIFE COMPANIES, CAPITAL GAINS AND INDEXATION RELIEF
The Treasury is now accepting that individuals will be affected by the reform to taxation of corporate capital gains.
HMRC’s initial take on the impact of the removal of indexation relief was, to say the least, disingenuous. HMRC’s Budget policy paper (still on site, unchanged) said that “This measure has no impact on individuals or households as it only affects companies.” When challenged on Budget Day about the impact on individual policyholders, the HMRC response was a non-committal “I can confirm that, as life assurance companies are subject to corporation tax on their capital gains, this measure will apply to them”.
It would now appear that the official stance has changed somewhat. According to Royal London, the Treasury’s standard letter in response to correspondence from the public on the subject says “…the impact passed on to individual policy holders is likely to be small”. No specific measure of what “small” means is supplied, nor is there any explanation of why the letter contradicts the website impact statement.
Royal London, primarily in the guise of Steve Webb, is calling on MPs to challenge the measure as the latest Finance Bill goes through parliament. The chances of a government U-turn look unlikely given the current political landscape.
HMRC GUIDANCE – DEEMED DOMICILE RULES AND CLEANSING MIXED FUNDS
HMRC has recently published guidance in relation to the deemed domicile rules and the ability to cleanse mixed funds.
From 6 April 2017 those who are resident in the UK for 15 of the prior 20 years are deemed UK domiciled for the purposes of income tax, capital gains tax and inheritance tax. The effect of these deemed domicile rules is to tax long term non domiciled individuals on their worldwide income and gains as they arise, so there is no ability for them to claim the remittance basis of taxation.
In order to help long term residents move from the remittance basis to worldwide taxation, two provisions were introduced by Finance Act 2017 namely; the ability to rebase certain foreign assets to the 5 April 2017 value (see our earlier bulletin) and the ability for all remittance basis users to cleanse mixed funds in the two year period to 5 April 2019.
Broadly, a mixed fund is a fund of money or other property which contains more than 1 type of income or capital (including ‘foreign chargeable gains’) and/or income or capital from more than 1 tax year.
However, it is important to note that this opportunity only extends to cash, therefore if an individual has purchased an assets with mixed funds, the asset would need to be sold.
The ‘cleansing’ of mixed funds enables a bank account containing untaxed unremitted income, capital gains and clean non-taxable capital to be segregated through moving the constituent parts to separate accounts. It will then be possible to remit funds from the new accounts to the UK in the most favorable manner.
In practice these rules are extremely complicated and come with a number of conditions. Broadly, the individual has to be a non UK domiciled, be able to identify the make-up of their mixed funds and have been a remittance basis user under the terms of the legislation (s809B, s809D, S809E of the Income Tax Act 2007) prior to April 2017. In addition, for transfers made before April 2008 these rules appear to have an added layer of complexity. In any event given the complex area of taxation individuals falling into this category are advised to seek professional advice from a specialist in this area prior to taking any action.
Note it is not possible to ‘cleanse’ mixed funds if the client was born in the UK and thus has a UK domicile of origin.
MAKING GIFTS ON BEHALF OF THE DONOR
In the light of some recent judgments by the Court of Protection, the Office of the Public Guardian for England and Wales has updated its legal guidance for professional deputies and attorneys on making gifts of a protected person’s property.
The new guidance in included in Public Guardian practice note (PN7) updated on 18 January 2018. It does not make any new rules but clarifies the position in the light of a number of recent decisions from the Court of Protection (CoP). As most advisers will be aware the power to make gifts by an attorney (acting under a Lasting Power or an Enduring Power) or a deputy is very limited.
From now on we refer to attorneys and donors but the same rules apply to deputies.
The basic rule
Attorneys can only make gifts on behalf of the donor:
- in some limited situations, and
- if it’s in the person’s best interests.
Before making a gift, an attorney must consider whether the donor:
- has mental capacity to understand the decision to make a gift, and
- if they can take part in the decision.
If the donor has capacity to make a gift, then they should normally make the gift themselves, rather than tell the attorney to make it on their behalf. If the attorney considers that the donor has capacity to make a gifting decision, they should keep a record of the steps they took to make sure they did. However, the guidance goes on to say that even if the donor apparently has capacity to make a gift, the attorney must still use care and caution when the donor expresses a desire to make one. If a substantial gift is involved, the attorney may need to seek advice or arrange for a mental capacity assessment, or both.
If the donor lacks capacity then, as with all decisions an attorney makes, the main test is whether it is in the donor’s best interests.
The “best interests” test
A best interests decision is not the same as asking what the person would decide if they had capacity. You have to think about:
- whether the person was in the habit of making gifts or loans of a particular size before they lost capacity
- the person’s life expectancy
- the possibility that the person will have to pay for care costs or care home fees in future
- the amount of the gift – it should be affordable and no more than would be normal on a customary occasion or for a charitable donation
- the extent to which any gifts might interfere with the inheritance of the person’s estate under his or her will, or without a will if one has to be created
- the impact of inheritance tax on the person’s death.
Gifts which are permitted
The general rule for attorneys in relation to making gifts on behalf of the donor is simple: apart from some exceptions, the law says you must not make gifts from the person’s estate.
To count as an exception, the gift must be:
- given on a customary occasion for making gifts within families or among friends and associates (for example, births, birthdays, weddings or civil partnerships, Christmas, Eid, Diwali, Hanukkah and Chinese new year)
- to someone related or connected to the person or (if not a person) to a charity the person supported or might have supported
- of reasonable value, taking into account the circumstances in each case and, in particular, the size of the person’s estate.
If an attorney wants to make a gift that falls outside the restrictions they must apply to the Court of Protection for approval.
Often the most difficult point will be the last one, i.e. whether the gifts are reasonable. This will, of course, depend on the circumstances, however the OPG gives the following guidelines.
To work out whether or not a gift is reasonable, you must consider:
- The impact of the gift on the person’s financial situation. You must consider not only their current and future income, assets, capital and savings but also their present and future needs. Consider whether their income covers their usual spending and will continue to do so in the future – and whether the gift would affect that.
- Whether making the gift would be in the person’s best interests (see above).
In deciding whether gifts are reasonable, the following should also be considered:
- are all members of the family being treated equally – if not, is there a good reason?
- is the attorney taking advantage of their position by making gifts only to himself or their family and not considering making gifts to others
- is the proposed gift for someone who is not a relative of the person or closely connected to them – if not, the gift may be beyond the attorney’s authority
- has the donor made gifts to someone before they lost capacity, and so would it be reasonable to give gifts to them now?
The guidance also states that the contents of a person’s will may be taken into account when making gifting decisions, as it is an indication of the donor’s wishes.
What is a gift?
It is also important to remember that a gift is when you move ownership of money, property or possessions from the person whose affairs you manage to yourself or to other people, without full payment in return.
A gift can include:
- making an interest free loan from the person’s funds, as the waived (dropped) interest counts as a gift
- creating a trust of the person’s property
- selling a property for less than its value
- changing the will of someone who’s died by using a deed of variation to redirect or redistribute the person’s share in the estate (meaning someone’s property and money)
For any gifts which are not covered by the “exceptions”, the attorney needs to apply to the CoP before they go ahead. The CoP has the power to either approve or refuse an application.
The guidance also states that any gift or transfer of real property (for example, land or a house) – either the whole property or a part share – is almost certainly outside of the attorney’s powers despite what the donor might have said when they had mental capacity. To make such a gift, they are likely to have to apply to the CoP for permission.
Attorney accepting/taking gifts for themselves
The guidance suggests that particular care should be taken if an attorney is thinking of accepting a gift for themselves from the person’s estate. The conflict of interests is obvious and an attorney must not take advantage of their position to benefit himself.
‘De minimis exceptions’ and Inheritance Tax planning.
The CoP has recognised that there are exceptions to the rule that an application to the CoP will always be required if the gift is not covered by the “Exceptions” mentioned above. Those exceptions from the rule are when an attorney would go beyond their authority to make a gift but in such a minor way that it doesn’t justify a court application – as long as the person’s estate is worth more than £325,000. These exceptions are often called ‘de minimis exceptions’.
Specifically the exceptions can be taken as covering the annual Inheritance Tax (IHT) exemption of £3,000 and the annual small gifts exemption of £250 per person, up to a maximum of, say, 10 people when:
- a) the person has a life expectancy of less than 5 years
b) their estate is worth more than the nil rate band for IHT purposes (currently £325,000)
c) the gifts are affordable, taking into account the person’s care costs, and won’t adversely (negatively) affect their standard of care and quality of life
d) there is no evidence that the person would be opposed to gifts of this value being made on their behalf
However, being able to gift small amounts up to the IHT exemption without the permission of the court doesn’t mean that an attorney can carry out ANY IHT planning without the court’s permission.
Neither can an attorney rely on other IHT exemptions to avoid applying to the court for permission to make a gift.
In one recent case, Senior Judge at the CoP specifically stated that attorneys who want to make larger gifts for IHT planning purposes – such as setting up monthly standing orders to themselves – should apply to the CoP for permission.
The above is all based on English law, as different rules apply in Scotland and in Northern Ireland.
The subject of powers of attorney as well as wills is often a good starting point to discussing clients estate planning. Where the client acts as an attorney, making gifts as part of IHT planning for a donor will frequently come up in any such discussion and so all advisers should be familiar with the legal rules for such planning.
FCA CONSULTS ON GIVING MORE SMALL BUSINESSES ACCESS TO THE OMBUDSMAN
FCA has launched a consultation on plans to give more small businesses access to FOS.
Following a review of the protections available, the Financial Conduct Authority (FCA) has launched a consultation on plans to give more small and medium sized enterprises (SMEs) access to the Financial Ombudsman Service (the Ombudsman).
At present only individual consumers and around 5.5 million micro-enterprises (the smallest type of business) can access the Ombudsman if they have a dispute with a financial services firm. Businesses that cannot access the Ombudsman would need to take the firm to court. However, the FCA believes that many smaller businesses within this group struggle to do so in practice.
Under the proposed changes by the FCA, approximately 160,000 additional SMEs, charities and trusts would be able to refer complaints to the FOS. This would be done by changing the eligibility criteria to access the Ombudsman, so businesses with fewer than 50 employees, annual turnover below £6.5 million and an annual balance sheet (i.e. gross assets) below £5 million would become eligible.
As long as a complainant is eligible, the Ombudsman can consider complaints about any regulated activity; it can also consider complaints about some unregulated activities, such as, lending to companies or the activities of business turnaround units.
The FCA also proposes to extend eligibility to personal guarantors of corporate loans, provided the borrowing business also meets the eligibility criteria.
This consultation paper will be of interest to all:
- providers of regulated and unregulated financial services, including advisers to SMEs, credit providers and intermediaries dealing with SMEs
- consumers who are self-employed, own or manage SMEs, provide guarantees for SME loans, or contribute to a family business
- those who provide business support to SMEs and to organisations that represent businesses and self-employed individuals
The FCA is asking for responses to the consultation by 22 April 2018 and intends to publish a Policy Statement making final rules in summer 2018.
PENSION SCAMMERS ORDERED TO REPAY £13.7M THEY TOOK FROM VICTIMS
The Pensions Regulator (TPR) has secured a High Court restitution order requiring the repayment of £13.7m to pension scheme members involved in a pension scam.
A press release from TPR has announced that four people who ran a series of scam pension schemes have been ordered to pay back £13.7 million they took from their victims.
David Austin, Susan Dalton, Alan Barratt and Julian Hanson squandered the money after 245 members of the public were persuaded via cold-calling and similar techniques to transfer their pension savings into one of 11 scam schemes operated by Friendly Pensions Limited (FPL).
Victims were told that if they transferred their pension pots to the schemes they would receive a tax-free payment commonly described as a “commission rebate” from investments made by the pension scheme – a form of pension scam.
The restitution order came about following TPR’s request to the High Court to order the defendants to repay the funds they dishonestly misused or misappropriated from the pension schemes – the first time such an order has been obtained. The High Court ruled the scammers should repay millions of pounds they took from the schemes over a two-year period.
Dalriada, the independent trustee appointed by TPR to take over the running of the schemes, will now be able to seek the confiscation of the scammers’ assets for the benefit of their victims.
PENSION FREEDOMS STATISTICS: £15.7 BN FROM APRIL 2015
HMRC have released figures that show pension savers have cashed in £15.7 billion from their pension pots since pension freedoms were introduced in April 2015.
Over 3.2 million taxable payments have been made using pension freedoms, with 198,000 people accessing £1.5 billion flexibly from their pension pots over the last 3 months, according to published HMRC figures.
There has been some discussion on the reason for the reduction of the average payment per individual in the last quarter but because providers don’t record the reason for the payments, it will all be speculation. It does appear though that the number of individuals accessing payments may have stabilized around the 200,000 mark each quarter but that could also just be coincidence.
||Number of payments (1)
||Number of individuals (1)
||Total value of payments (2,3)
Notes to the table
- i) The numbers published for 2015-16 are not comprehensive as to manage the burden on industry reporting was optional for 2015-16 but compulsory from April 2016. The increase in reported payments seen in 2016 Q2 is expected to partly result from this.
- ii) The data underpinning these figures comes from Real Time Information (RTI) reports submitted to HMRC.
- Figures are rounded to the nearest 1,000.
- Figures are rounded to the nearest £10 million.
- Includes taxable payments only.
- The number of individuals for the year totals are less than the sum of the number of individuals from each quarter as some have taken payments in multiple quarters.
- Quarterly figures may not sum to total due to rounding.
THE COST OF TAX RELIEF
HMRC has just issued revised – and higher – projections on the cost pension tax reliefs to the Exchequer in 2017/18.
Last October HMRC updated its statistics on tax relief costs for pension arrangements, incorporating provisional figures for 2015/16, the latest reported tax year. At the time we commented that the data was inevitably dated because of tax return timing and hard to compare with previous years because of the roll out of auto enrolment.
HMRC have now published revised estimates for the 2017/18 cost of pensions tax reliefs as part of its annual updating of the estimated costs of the principal tax reliefs. These are not directly comparable with the historic data figures because in arriving at the cost of income tax relief, HMRC make a deduction equal to the amount of tax received from pensions in payment. Nevertheless, the numbers tell their own story:
|Income Tax Cost
|Employer NIC Cost
As we head towards the Spring Statement, that near £41bn figure may weigh on the Chancellor’s mind.
PENSION SCHEMES NEWSLETTER 95 PUBLISHED
Newsletter providing HMRC updates
HMRC has recently published Newsletter 95 which covers:
Pensions flexibility statistics:
From 1 October 2017 to 31 December 2017 HMRC processed:
- P55 = 5,310 forms
- P53Z = 3,597 form
- P50Z = 1,024 forms
Total value repaid: £20,562,071.
Scottish Income Tax and Relief
Notification of residency status report
HMRC explained in the relief at source for Scottish Income Tax newsletter that they would send notification of residency status reports to scheme administrators of relief at source pension schemes. This information will allows you to apply the correct rate of relief to your scheme members in the tax year 2018 to 2019.
HMRC started to release the notification of residency status reports on 29 January 2018. You can now log into the Secure Data Exchange Service (SDES) to access your report as soon as it’s available.
Annual return of individual information for 2017 to 2018 onwards
As explained in pension schemes newsletter 94, when submitting your annual return of individual information for 2017 to 2018 onwards, you must not do this on paper.
Between April 2018 and April 2019 you can still submit your return by email, USB, CD or DVD. If you’re sending your information by post, make sure the media is securely packaged, password protected and sent by tracked post. You can find more information in pension administrators: relief at source annual information returns.
Over the next few months HMRC will be working with scheme administrators to improve the format of the data submitted on the 2017 to 2018 annual return of individual information. This means they can match more members when HMRC send the next notification of residency status report in January 2019.
Scottish Income Tax newsletter
A further newsletter on relief at source for Scottish Income Tax is planned in mid-February 2018.
Her Majesty’s Government and HMRC are working closely with the Scottish Government and pension providers to explain how providing tax relief will operate for Scottish pension savers. This will depend on the Scottish Rate Resolution being agreed later in February by the Scottish Parliament.
HMRC have received questions about their information powers for pension schemes. Paragraphs 34B and C of Schedule 36 Finance Act 2008 allow HMRC to issue third parties with an information notice about pension matters in specific circumstances. Approval from the tribunal or taxpayer isn’t needed.
Reporting of non-taxable death benefits
HMRC are working to resolve the problem of P6 tax coding notices being issued in error for death benefit payments that are entirely non-taxable. You should continue to follow the guidance in pension schemes newsletter 78 until further notice.
Guidance from Newsletter 78:
- If possible, stop reporting these non-taxable death benefit payments for 2016. You should continue to keep appropriate records to show that the payment was entitled to be made tax-free and further guidance will be issued once investigations are completed.
- Continue reporting and if a P6 coding notice is issued that will be applied against future non-taxable payments to the beneficiary, email: email@example.com and put ‘reporting non-taxable death benefit payments’ in the subject line. Please provide a contact name and telephone number in the email and HMRC will contact you to review the coding. In circumstances where the P6 has not been applied to the customer record, there will be no need to take any further action.
Postal address reminder
Pension Schemes Services
HM Revenue and Customs
CASH GIFTS HELD NOT TO BE DELIBERATE DEPRIVATION OF CAPITAL
Interesting Ombudsman decision of whether gifts to family made by someone in care constitute deliberate deprivation of capital.
When individuals give away assets when there is an expectation of them going into care or while they are in care, the gifts may be considered as a deliberate deprivation of assets. In such a case the local authority will treat the assets given away as notional capital for the purpose of assessment. However the deprivation of capital must be deliberate in that it is carried out with the intention of putting assets beyond the reach of the local authority.
In the case in question, the Local Government and Social Care Ombudsman has criticised a local authority that refused to pay for an elderly woman’s residential care fees, after it learned that she had made regular cash gifts to her family after being admitted to the care home.
The woman, referred to as Mrs Y, suffered a stroke in 2007 and, aged 80, had to go into residential care. At the time, she had assets of about £250k, including her home. As a result she was not eligible for local authority financial assistance under the Charging for Residential Accommodation Guide (CRAG) rules. Mrs Y’s daughter sold her mother’s house, and used the proceeds to pay her care home fees.
By January 2015, the money had nearly all been used up, and Mrs Y’s assets had fallen to the £23,250 threshold for local authority assistance in England. At this time, her daughter applied to North Yorkshire County Council for financial help, and pending completion of a full financial assessment, was granted it.
From January 2015, North Yorkshire County Council began paying the care home fees including a special extra rate charged by the home on top of the standard local authority rate. However, when the Council came to do the financial assessment, it has been revealed by Mrs Y’s daughter that she, and other family members, had been receiving annual cash gifts from her mother since she had been admitted into the care home until 2014, at which point her money had run out. The daughter said that the gifts had been recommended by an independent financial advisor. They amounted to nearly £75,000 in total.
The Council took the view that this was deliberate deprivation of capital under the CRAG rules, which state that gifts to family can be treated as deprivation of capital if they are made with the intention of reducing the amount the person is charged for their care. As a result the Council immediately stopped paying Mrs Y’s care home fees and demanded repayment of the nearly £7,000 it had already paid. While Mrs Y’s family paid the money back they complained to the Ombudsman about the Council’s behaviour.
The Ombudsman decided that North Yorkshire County Council took its actions without ever completing a full financial assessment and simply assumed that the gifts amounted to deliberate deprivation of capital. In addition, the Council’s calculations on the amount of deprived capital were not supported up by any evidence. The Council had not properly taken into account that Mrs Y had already established a pattern of gifting before she went into care and there was no evidence of any haste to dispose of her assets. Even though the amount of the gifts increased after she went into care, the Council did not provide any other evidence to show why it had decided the gifts were made with the intention of avoiding care costs. Mrs Y had paid the full amount of her care for nine years, and more than 70 per cent of her money has been spent on care home fees.
The Ombudsman ordered the Council to apologise, reassess Mrs Y’s situation properly, and repay her any fees to which she is entitled.
Mrs Y is still in the same care home, and pays all her monthly income towards the fees, but cannot cover the full cost. The care home has said that it will take ‘further action’ if the debt is not paid.
The outcome of this case is interesting to say the least and goes to show that each case will be assessed based on the specific facts. In this particular case, the fact that Mrs Y had established pattern of gifting and such gifts – while increased when she went into care – had started prior to her going into care went in her favour
Following public consultation in 2017 changes have been introduced to the land registration rules in England and Wales to come into effect from April 2018.
The Government has approved new regulations allowing HM Land Registry to accept digital conveyancing documents such as mortgages and transfers authenticated by electronic signatures. This, in effect, allows conveyancing transactions to be carried out entirely on-line. To enable this to take place some changes were necessary to the Land Registration Rules 2003 and these have now been approved. As with all on-line transactions, the difficulty lied in the combination of overall objective to use digital technology to make transactions simpler, faster and cheaper with enhancing the integrity and security of the registration process against threat from cyber-attacks and digital fraud. Under the new system e-signatures will be provided through the Gov.uk Verify service. Conveyancing practitioners should be receiving, if they have not already done so, communications from HM Land Registry about the changes that affect the way applications to register land are submitted.
There is no escaping from the progress of technology. The legal bases for electronic signatures do of course exist in the UK. The Electronic Communications Act 2000 confirms that electronic signatures are admissible in evidence although it does not go as far as providing that they have equivalent legal effect as wet ink signatures. The latter provision is in fact included in the EU legislative framework, namely Regulation (EU) No 910/2014 effective from July 2016 which provides that a qualified electronic signature has the equivalent legal effect of a handwritten signature. However the EU Regulation also states that it is for national law to define the legal effect of electronic signatures.
The effect of this is that at present in the UK, save where there are specific regulations dealing with this matter such as the above mentioned provisions for e-conveyancing, there is no general acceptance of e-signatures in place of wet ink signatures (as yet).
The question of electronic execution of documents frequently arises when discussing the process of setting up a trust, especially in the context of life policy trusts.
Generally speaking, it is fairly common practice now for trust requests to be accepted by life offices during an on-line application process (ie. where the applicant proposes for life assurance cover using online application process and at the same time requests that the policy be issued subject to a specified trust). Under English law the problem is in the context of execution of deeds, given that special requirements apply when a document needs to be executed by way of a deed. In the contest of trusts, where an existing life assurance policy is transferred into a trust it would normally be done by way of a deed. Similarly, if additional trustees are appointed, this would be done by way of a deed.
While there are some guidelines on electronic execution of deeds issued by the Law Society, these are generally only followed where a solicitor is involved and the parties sign in the presence of a solicitor. In all other cases, especially when using standard trust documents provided by life offices, electronic execution of such documents is yet to come
EXTENSION OF OFFSHORE TIME LIMITS: COLLECTING LOST TAX FROM EARLIER YEAR
Proposals to extend the time limit for HMRC to assess lost tax of earlier years in cases involving offshore income, gains or chargeable transfers.
On 19 February HMRC published a consultation on proposals to extend the time period over which it can go back and assess tax on undeclared offshore income, gains and chargeable transfers to a minimum of 12 years. This follows on from another time limit extension related to offshore non-compliance introduced by new ‘Requirement to Correct’ rules. A link to the latest consultation can be found below:
We covered the Requirement to Correct (RTC) rules in our Bulletin of 14 November 2017 and in an earlier Bulletin of August 2016.
Current time limits and extension under the RTC rules
The current time limits for ‘non-deliberate’ offshore tax non-compliance are normally four years and six years, as follows:
- For income tax and capital gains tax HMRC can go back up to four years after the end of the tax year to which the loss of tax relates; six years if the loss of tax was brought about by ‘carelessness’. For example, HMRC has up until 5 April 2022 to assess lost income tax from the 2017/2018 tax year; 5 April 2024 in a case of ‘carelessness’.
- For corporation tax the time limits are four/six years after the end of the accounting period in question;
- For inheritance tax, where payment has been made and accepted in full satisfaction of the tax due, the time limits are four/six years from the later of the date on which the (last) payment was made (and accepted by HMRC), or the date on which the tax or last instalment became due.
However, the time limit is 20 years from the date of the chargeable transfer where an inheritance tax account hasn’t been delivered, or tax payments haven’t been made and accepted.
HMRC can also go back 20 years in cases of loss of tax due to ‘deliberate’ behaviour. And they can go back to any year, without time limit, where an inheritance tax account hasn’t been delivered, or tax payments haven’t been made and accepted, and a loss of inheritance tax has been brought about deliberately.
In the case of deceased taxpayers, the time limit is four/six years from the end of the tax year in which the taxpayer died. However, HMRC can’t go back more than six years before the date of death, even where the loss of tax is due to deliberate behaviour or the failure of the deceased to notify chargeability.
The time limit extension under the RTC rules
The new RTC rules extended the time limits for assessing income tax, capital gains tax and inheritance tax, but not corporation tax, related to offshore non-compliance committed before 6 April 2017.
For tax non-compliance to be within scope of the RTC rule, HMRC must have been able to make an assessment to recover the income tax or capital gains tax in question on 6 April 2017 or make a determination to recover the inheritance tax in question on 18 November 2017 (the day after Royal Assent was received for the RTC provisions).
The normal assessing rules set out above apply to decide whether HMRC is able to raise an assessment on 6 April 2017 / 18 November 2017.
The RTC legislation then allows for a longer period for HMRC to take action to recover any tax that is subject to the RTC rule.
This means 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 or the date on which an assessment can be raised using the normal rules.
The new proposals
The consultation proposes a new 12 year minimum time limit for income tax, capital gains tax and inheritance tax and it asks if this new time limit should also apply to corporation tax.
The 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.
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.
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.
Note that the current 20-year time limits mentioned above are not expected to change.
Full details of the RTC rules, including the current time limits, are available here.
This consultation closes at 11:45pm on 14 May 2018, after which time the Government will publish draft legislation (expected this summer) with a view to it taking effect from April 2019.
We will continue to monitor developments in relation to this important consultation and keep you informed.
The Office of the Public Guardian has revised the process for dealing with refunds where the donor of a power of attorney has died.
The Office of the Public Guardian (OPG) recently announced that it would refund part of the fee levied for registering a lasting power of attorney or an enduring power of between 1 April 2013 and 31 March 2017.
At the time the OPG website said that if the donor had died, then it would not be possible to claim online and that a claim had to be made by phone. By coincidence we had occasion to try the phone route shortly after posting the Bulletin. The predictable happened: a long queue, then cut off. A second call shortly afterwards generated a message to send in details by email, although the paperwork required was not specified.
The OPG has since changed its approach where the donor has died (which is probably quite a common situation). The OPG website now states that in such circumstances it will only accept a claim from the executor/administrator, who must supply photocopies of both the:
- death certificate; and
- will or the grant of representation (for example, a grant of probate or letters of administration)
The claimant must also supply their name, contact number, email address and postal address along with the donor’s name and, if known, case reference number.
These can all be posted or emailed to firstname.lastname@example.org.
A Freedom of Information request from Old Mutual Wealth revealed that there is potentially a total of 1.8m refunds due, which begs the question of how the OPG ever thought a phone service was going to cope with demand.
TPRS LATEST ROUND OF SPOT CHECKS
The Pensions Regulator has begun carrying out spot checks in cities across the East Midlands to ensure employers are complying with their pension duties.
Inspection teams will visit dozens of businesses in Nottingham, Derby and Leicester this month to check that qualifying staff are being given the workplace pensions they are entitled to.
The move is part of a nationwide enforcement campaign which began in London last spring to ensure employers are meeting their automatic enrolment duties correctly.
This is the first time these checks have been done in the East Midlands. Short-notice inspections have also been carried out in Greater Manchester, Sheffield, Birmingham, South Wales, Edinburgh and Glasgow.
The checks will help TPR understand whether employers are facing any unnecessary challenges that we can help them with, such as helping them improve their systems.
But they will also highlight employers who have not taken the required steps to become or remain compliant, paving the way for enforcement action.
Darren Ryder, TPR’s Director of Automatic Enrolment, said:
“The vast majority of employers are compliant with the law, but these visits help us identify why some may be struggling so we can take action where we need to.
“Automatic enrolment is not an option, it’s the law. Where we find employers are not complying, we will use our powers to ensure they comply so that staff receive the pensions they are entitled to.”
Nearly one million employers across the UK have met their automatic enrolment duties, with more than nine million workers given workplace pensions as a result.
Data to the end of December 2017 reveals 1,750 employers in Derby, 3,220 employers in Nottingham and 2,820 employers in Leicester have met their automatic enrolment duties. As a result 125,000 staff in those areas have been put into a workplace pension.
AE NUMBERS NOW EXCEED £9M
The latest (Feb 2018) Compliance bulletin published by the Pensions Regulator confirms the number of employers meeting their workplace pension duties has hit one million and there are now 9.3m people saving into a pension.
TPR’s Director of Automatic Enrolment, Darren Ryder, said: “I am delighted we have reached this important landmark, which shows how far we have come since the start of automatic enrolment.
“By successfully meeting their responsibilities, employers have helped reverse the downward trend in workplace saving so that putting earnings into a pension has now become the norm.
“The continued support of the pensions industry, including pension and payroll providers and business advisers has been crucial to the success of automatic enrolment. The industry has helped us ensure employers have the tools, information and services they need to comply with the law. We are now focused on the challenges ahead so that employers continue to understand what they need to do so that staff receive the pensions they are entitled to.”
PPI BRIEFING NOTE 105
The Pensions Policy Unit have published Briefing Note 105 which looks at the impact of AE on younger generations.
In summary their findings established:
- Millennials make up around 40% of the target group for automatic enrolment.
- Automatic enrolment has almost doubled the participation of 22 to 29 year olds in pension schemes.
- A 22 year old median earning man in 2017 may be able to achieve a pension fund of £108k under AE minimum contributions.
- Removing the triple lock on State Pensions could reduce the retirement income of a 22 year old low earner by 5%.
- A median earning 18 year old automatically enrolled under the AE Review recommendations, at age 18, with the lower earnings limit removed, could achieve a fund of £146k at their SPa, 32% higher than under the current AE policy.
The briefing note makes interesting reading. The impact of changes made to the AE structure will have a significant positive impact on the funds that can be achieved for future generations. Notably in the 2017 Automatic Enrolment Review the recommendations made were:
- Removing the lower limit on eligible salary – so contributions based on first £1 of salary
- Reducing the age limit to 18
- The ability to continue contributing post SPA
The AE space has made significant changes to the pension savings landscape with 9.3m eligible workers having been automatically enrolled. Now the process is business as usual for employers, it’s inevitable that the structure will be amended to maximise its impact. There is no shortage of research showing that low earners are being disadvantaged by the minimum contributions not being based on first £1 of income – rather from £5876 and then the question of tax relief for those not in a relief at source scheme will need addressing.
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