Seven Rules for Building Powerful Professional Relationships

Powerful professional relationships are often the foundation of tremendous success enjoyed by the self-made Super Rich, who prove to be quite remarkable at connecting interpersonally with other businesspeople and motivating them to help the self-made Super Rich achieve their goals.

Here are just a few ways you can build powerful professional relationships:

  • Demonstrating your passion gets other people to want to align themselves with you and your endeavours.
  • Harness the power of reciprocity – help others get what they want and they’ll return the favour.
  • Admitting and revealing your imperfections can actually create stronger relationships and better results.

Click the image below to read the full article:

Professional Relationships

Other notes and risk warnings

This article contains the opinions of the authors but not necessarily Donald Wealth Management (the Firm) and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. It is not a promotion of Donald Wealth Management’s services. Donald Wealth Management strongly suggests that no investor should act on any of these ideas without first seeking financial advice.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. The value of an investment is not guaranteed and on encashment you may not get back the full amount invested. Errors and omissions excepted.

Donald Wealth Management is a trading style of Donald Asset Management Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (FRN: 223784). Donald Asset Management Limited is registered in England and Wales under Company No. 4675082. The registered office address of the Firm is: Stable End, 12 Heather Court Gardens, Four Oaks, West Midlands, B74 2ST.

The Two Types of Professional Networks You Need to Become Super Rich

There are two types of professional networks that you need in order to support your business and gain an abundance of wealth. Expansive networks and nodal networks are vital to becoming super rich.

  • Top entrepreneurs use expansive networks of many people and nodal networks with just a few contacts to generate tremendous wealth.
  • Nodal networks are tougher to build – they require deep relationships with exactly the right people – but they offer a tremendous return on investment of your time and energy.
  • Leveraging the connections of your own network members can work like rocket fuel – rapidly accelerating your success.

This article explains exactly what these networks consist of and how they could benefit you.

Click the image below to read the full article:

Professional Networks











Other notes and risk warnings

This article contains the opinions of the authors but not necessarily Donald Wealth Management (the Firm) and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. It is not a promotion of Donald Wealth Management’s services. Donald Wealth Management strongly suggests that no investor should act on any of these ideas without first seeking financial advice.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. The value of an investment is not guaranteed and on encashment you may not get back the full amount invested. Errors and omissions excepted.

Donald Wealth Management is a trading style of Donald Asset Management Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (FRN: 223784). Donald Asset Management Limited is registered in England and Wales under Company No. 4675082. The registered office address of the Firm is: Stable End, 12 Heather Court Gardens, Four Oaks, West Midlands, B74 2ST.

February 2018 News For Our Professional Connections

February 2018 professional newsThe latest stories in the news for February 2018, which may be of interest to our professional connections only.


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 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.


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.

Donor’s capacity

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:

  1. 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)
  2. to someone related or connected to the person or (if not a person) to a charity the person supported or might have supported
  3. 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:

  1. 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.
  2. 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:

  1. 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 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.


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.


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.

and quarter Number of payments (1) Number of individuals (1) Total value of payments (2,3)
2015 Q2 121,000 84,000 £1,560m
2015 Q3 130,000 81,000 £1,170m
2015 Q4 123,000 67,000 £800m
2016 Q1 142,000 74,000 £820m
2016 Q2 296,000 159,000 £1,770m
2016 Q3 324,000 158,000 £1,540m
2016 Q4 393,000 162,000 £1,560m
2017 Q1 381,000 176,000 £1,590m
2017 Q2 403,000 200,000 £1,860m
2017 Q3 435,000 198,000 £1,590m
2017 Q4 454,000 198,000 £1,504m


Notes to the table

  1. 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.
  2. ii) The data underpinning these figures comes from Real Time Information (RTI) reports submitted to HMRC.


  1. Figures are rounded to the nearest 1,000.
  2. Figures are rounded to the nearest £10 million.
  3. Includes taxable payments only.
  4. 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.
  5. Quarterly figures may not sum to total due to rounding.


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:

Tax Year 13/14£m 14/15£m 15/16£m 16/17£m 17/18*£m
Income Tax Cost 20,700 21,150 23,400 23,650 24,050
Employer NIC Cost 13,850 13,700 15,700 16,350 16,900
Total Cost 34,550 34,850 39,100 40,000 40,950


As we head towards the Spring Statement, that near £41bn figure may weigh on the Chancellor’s mind.


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.

Scottish Budget

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.

Information Powers

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:

  1. 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.
  2. Continue reporting and if a P6 coding notice is issued that will be applied against future non-taxable payments to the beneficiary, email: 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


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 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


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 newRequirement 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.

Example 1

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

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

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

Example 2

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

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

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

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.


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.


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.”


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.


This article contains the opinions of the authors but not necessarily Donald Wealth Management (the Firm) and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. It is not a promotion of Donald Wealth Management’s services. Donald Wealth Management strongly suggests that no investor should act on any of these ideas without first seeking financial advice.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. The value of an investment is not guaranteed and on encashment you may not get back the full amount invested. Errors and omissions excepted.

Donald Wealth Management is a trading style of Donald Asset Management Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom (FRN: 223784). Donald Asset Management Limited is registered in England and Wales under Company No. 4675082. The registered office address of the Firm is: Stable End, 12 Heather Court Gardens, Four Oaks, West Midlands, B74 2ST.


January 2018 News For Our Professional Connections

January 2018 professional newsThe latest stories in the news for January 2018, which may be of interest to our professional connections only.


The Government intend to introduce new regulations on how DOTAS applies to Inheritance Tax Avoidance Schemes.

The Disclosure of Tax Avoidance Schemes (DOTAS) Regulations are an important weapon available to HMRC in its fight against tax avoidance schemes.  In essence, if a scheme satisfies certain conditions, any person involved in the promotion of the scheme must disclose details of the scheme to HMRC.  If they do not comply with this requirement, they risk suffering substantial penalties.

Revised DOTAS Regulations have been published in relation to schemes established to avoid inheritance tax.  These Regulations are set out in Statutory Instrument 2017 No. 1172 entitled ‘The Inheritance Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2017’.  The rules come into force on 1 April 2018.

Under the revised rules, a scheme will be notifiable for IHT purposes if it falls within the description in Regulation 4.  An arrangement will be covered by Regulation 4 ‘if it would be reasonable to expect an informed observer (having studied the arrangements and having regard to all relevant circumstances) to conclude that conditions 1 and 2 are met’.

In this respect:

Condition 1 is that the main purpose, or one of the main purposes, of the arrangement is to enable a person to obtain one or more of the following IHT advantages:

  • the avoidance or reduction of an entry charge on a relevant property trust
  • the avoidance or a reduction in specified IHT charges under certain sections of the IHT Act 1984 (mainly relating to relevant property trusts)
  • the avoidance or a reduction in an IHT charge under the gift with reservation rules (in cases where the POAT charge does not apply)
  • a reduction in a person’s taxable estate with no corresponding lifetime transfer.

Condition 2 is that the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained.

It is important to note that certain arrangements are excepted from the new provisions.  Most notably if they:

  • implement a proposal which has been implemented by related arrangements; and
  • are substantially the same as the related arrangements

In this requirement “related arrangements” are defined as arrangements which

  • were entered into before 1 April 2018; and
  • at the time they were entered into, accorded with established practice of which HMRC had indicated their acceptance.

These new Regulations adopt a much broader approach to what was previously proposed.  In particular, there is now no specific exclusion from the DOTAS Regulations for loan trusts, discounted gift trusts and reversionary interest trusts.

However it is probably reasonable to take the view that all of these 3 types of scheme are examples of arrangements that were generally acceptable before 1 April 2018 and would have been acceptable under established HMRC practice.

This would be on the basis that HMRC are aware of these arrangements and, indeed, in the case of discounted gift trusts, have issued tables of discounted values.

It is hoped that the precise position will be clarified with HMRC in the near future.



HMRC has updated its guidance for penalties for enablers of tax avoidance schemes.

Following our earlier bulletin, HMRC has updated its guidance for penalties for enablers of tax avoidance.

The guidance supports new legislation introduced in Clause 65 and Schedule 16 of Finance (No 2) Act 2017.

The legislation takes effect from 16 November 2017 which is the date of Royal Assent to the Finance (No.2) Act 2017. The legislation only applies where there are abusive tax arrangements that have been defeated and both of the following apply:

  • the tax arrangements are entered into on or after 16 November 2017
  • the enabling action is taken on or after 16 November 2017

We have covered this subject in detail in various bulletins on Techlink, however in summary:

  • The term “enabler” is intended to include anyone in the supply chain who benefits from an end user implementing tax avoidance arrangements which are later defeated.
  • The focus will therefore be on those who benefit financially from enabling others to implement tax avoidance arrangements which fail.
  • The legislation gives HMRC the power to tackle all aspects of the marketed avoidance supply chains, complementing the suite of anti-avoidance measures already in place. Activities which constitute enabling will include designing, marketing or facilitating the use of abusive tax arrangements that are defeated. .
  • There will be safeguards for the vast majority of tax professionals who already adhere to professional standards, such as the Professional Conduct in Relation to Taxation and the Code of Practice on Taxation for Banks.
  • A penalty only arises where a taxpayer has entered into abusive tax arrangements and those arrangements are subsequently defeated.  The penalty will be linked to the enabler’s fees; HMRC will be able to estimate this if enablers seek to disguise their fee levels.



The recent decision in JSC Mezhdunarodniy Promyshlenniy Bank and another v Pugachev and others [2017] EWHC 2426 (Ch) shows willingness of the Courts to strike down sham trusts.

It is well known that for a trust to be legally effective, the settlor must divest himself of the beneficial ownership of the trust property. This is especially important where the settlor is one of the trust beneficiaries or has reserved extensive powers for himself. If the trustees do not assume proper control over the trust property and simply follow the settlor’s instructions, the chances are the trust will be declared to be a sham or a mere illusion (there is only a subtle difference in law between the two). There have been a number of cases where a trust has been declared to be a sham and therefore not valid. For more information on shams, please see here. As for trying to avoid creditors, even if a trust is not a sham, there are provisions in the Insolvency Act 1986 which allow a trust to be set aside if created with the intention to defraud creditors (regardless of when it was set up).

The Pugachev decision is interesting as it comes soon after the Panama Papers and Paradise Papers and the considerable publicity given recently to tax avoidance involving hiding assets offshore. It is also interesting because the claimants based their case on three separate arguments so as to cover all angles. In the event they won on all three counts.

The facts

The facts of the case were as follows:

Mr Sergei Pugachev, a Russian national, founded Mezhprom Bank in Russia in 1992. Following the 2008 financial crisis the bank suffered losses and was ultimately declared insolvent in 2010. The Russian state agency, Deposit Insurance Agency (DIA), was appointed as liquidator.

Between 2011 and 2013, Mr Pugachev settled over US $95 million of his assets in five New Zealand discretionary trusts.

Although the majority of the assets had notionally been settled on trust by Mr Pugachev’s son, Viktor, the assets originated from Mr Pugachev (indeed the judge decided that Mr Pugachev should be treated as the settlor of the trusts as Viktor was in effect acting as his nominee).

The trusts held assets largely for the benefit of Mr Pugachev, his partner and their minor children.

The trusts were governed by New Zealand law and were set up with the assistance of a New Zealand solicitor. The solicitor and his wife were directors of the companies that acted as trustees.

There was in fact a case brought in the New Zealand Court where the original trustees had been removed with the agreement of the Court. Although the New Zealand court suggested that it considered the trusts to be neither illusory nor shams, this was apparently based on deficient and incorrect information given to the New Zealand Court.

Mr Pugachev was the protector of each of the trusts, with Viktor named as successor protector. The trust deeds provided that Mr Pugachev’s protectorship would automatically terminate in circumstances where he was “under a disability”, a term which included when Mr Pugachev was subject to the claims of creditors. The protector’s powers were unusually extensive and included powers to:

  • veto the distribution of income or capital from the trusts;
  • veto the investment of the trust funds;
  • veto the removal of beneficiaries;
  • veto any variation to the trust deeds;
  • veto the release or revocation of any power granted to the trustees;
  • veto the early termination of the trust period;
  • appoint and remove trustees, with or without cause;
  • add further beneficiaries; and
  • veto an amendment to the trusts by the trustees.

Back in Russia the DIA alleged that Mr Pugachev had misappropriated Mezhprom Bank assets prior to the liquidation and in 2015 the Russian Court gave judgment against Mr Pugachev in the sum of approximately US $1 billion. Mr Pugachev fled Russia and moved to England. (Hence the case heard in the English Court).

The DIA began enforcement proceedings in England and obtained a GBP £1.1 billion worldwide freezing order against Mr Pugachev’s assets. He was also sentenced to two years’ imprisonment for contempt of court which he has not served as he fled to France.

The argument

Mezhprom Bank and the DIA (the Claimants), sought to “bust the trusts” and enforce the judgement against the assets of the trusts on three separate bases:

  1. The trusts were illusory and of no substance because the trust deeds, properly construed, did not divest Mr Pugachev of his beneficial ownership in the trust property;
  2. Alternatively, the trusts were shams and of no effect because the common intention was that the assets would continue to belong to Mr Pugachev; and
  3. In the alternative to the first two claims, if the trusts were effective and divested Mr Pugachev of ownership of assets, they should be set aside under section 423 of the Insolvency Act 1986 because the intention was to prejudice the interests of Mr Pugachev’s creditors.

The judgment

As indicated above the High Court agreed with all three arguments.

Re: Illusory Trusts

The Court concluded that these were bare “illusory” trusts. Mr Pugachev was the settlor, discretionary beneficiary and protector of the trusts. He retained extensive control because he could dismiss the trustees and veto how they exercised their powers, and consequently retained beneficial ownership of the assets he put into the trust.

Re: sham

The Court decided that it was a sophisticated and subtle form of sham. The intention was for Mr Pugachev to retain ultimate control, but to hide this control from third parties by giving a false impression that he had only limited powers as protector. The second protector, Victor, acted on his father’s instructions and whilst the other beneficiaries (his children) would benefit from the trust, they only did so through the decisions of Mr Pugachev. In addition, the New Zealand solicitor who acted as director of each of the trustee companies had no independent will to that of Mr Pugachev.

Re: Section 423

The Court found that if the trust deeds did divest Mr Pugachev of his beneficial interests in the assets, then it was with the purpose of hiding his control of the assets in the trusts from his creditors and so should be set aside.

Given especially the extensive powers that Mr Pugachev reserved for himself it is not really surprising that the Court found against him, especially given the specific facts and circumstances, which are probably not that common. However there are some important lessons here for all  potential settlors, namely that the  retention of excessive control over a trust arrangement may lead to successful claims by third parties that the settlor has never successfully divested himself of the beneficial ownership of  the relevant assets.



The Pensions Regulator is to prosecute a Birmingham based company for falsely claiming they had met their AE duties.

The Pensions Regulator (TPR) is to prosecute a healthcare company and its managing director for trying to avoid providing their staff with a workplace pension.

Birmingham-based Crest Healthcare and managing director Sheila Aluko are accused of wilfully failing to comply with their automatic enrolment duties under section 45 of the Pensions Act 2008.

Both defendants are also accused of falsely claiming that they had enrolled 25 staff into a workplace pension scheme. Knowingly providing false information to TPR is an offence under section 80 of the Pensions Act 2004.

Crest Healthcare and Sheila Aluko have been summoned to appear at Brighton Magistrates’ Court on 22 December 2017.

They will each face two charges of wilfully failing to comply with their automatic enrolment duties and one charge of knowingly or recklessly providing false or misleading information to TPR.  Both charges can be tried in a Crown Court or in a magistrates’ court. In a Crown Court the maximum sentence for each is two years’ imprisonment. In a magistrates’ court, the maximum sentence for each is an unlimited fine.

This is another example of the TPR taking their statutory objectives very seriously. It will be interesting to see any outcomes of the round-the-country AE spot checks.



HMRC have issued a newsletter providing an update on work done and information to help prepare for April 2018

HMRC have published another newsletter following their last update in May 2017. This newsletter gives an update on the work they and undertaken in the interim and information to help scheme administrators prepare for April 2018.

The newsletter includes details on the following:

  • Scottish Budget
  • Notification of residency status report
  • Residency status look up service
  • How to apply relief at source rate for the whole tax year
  • How to submit your annual return of individual information to HMRC
  • Relief at source draft regulations

Scottish Budget

The Government and HMRC will be working closely with the Scottish Government and with pension providers on the implications of that change for pension tax relief, and to clarify how the mechanisms for providing relief will operate in respect of Scottish pension savers.

Notification of residency status report

HMRC aim to tell administrators the residency tax status of scheme members for the first time in January 2018, so that they can apply the correct rate of relief at source to your scheme members in the tax year 2018 to 2019. This information will then be sent each January going forward.

This information will be sent via the secure data exchange service (SDES).

The report will tell administrators the residency tax status of each of the scheme members on the notification of residency status report by adding an additional field to the original information submitted showing:

  • an S for Scottish tax status
  • a U for unmatched individuals
  • a blank field for rest of the UK

In addition they will add a field including the National Insurance number submitted for an individual if it is incorrect and provide the correct one.

Residency status look up service

The residency status look up service is still being developed and will be announced in pension scheme newsletters when available. This newsletter gives more details on how the look up works and what information will be returned.

How to apply relief at source rate for the whole tax year

Administrators must apply the same tax rate for a member for the whole of a tax year, even if their status has changed since they received the notification of residency status report or their last residency status was looked up.

If a new member joins the scheme and the administrator is unable to look up their status before they apply tax relief at source to the first contribution, they must default the member’s residency status to rest of UK and maintain this rate for the whole tax year.

If no notification of residency is received and they didn’t look up the residency status of the member, they administrator must also default their residency status to rest of UK.

Shortfalls or excess payments of relief at source at the end of the tax year will be collected or repaid directly to the member.

How to submit your annual return of individual information to HMRC

Details of how to submit the annual return via the SDES are included in the newsletter.

Relief at source draft regulations

The Registered Pension Schemes (Relief at Source)(Amendment) Regulations 2018 were issued for a short consultation.



Revenue Scotland had conceded, after representation, that in-specie transfers of Scottish properties will not be subject to the Land and Buildings Transaction Tax as previously announced.

In a Technical Bulletin issued by Revenue Scotland confirms that in-specie transfers of Scottish Properties between pension schemes will not be subject to the Land and Buildings Transaction Tax.

In its October 2016 LBTT Bulletin Revenue Scotland published a brief statement to clarify its view of the treatment for LBTT purposes of in-specie transfers between pension funds.

The October bulletin indicated that, in-specie transfers between pension schemes were subject to the charge because such a transfer is a land transaction and the assumption of liability by the receiving pension fund is debt as consideration. However, following further representations on the matter, Revenue Scotland has now concluded that while such transfers are still considered to be land transactions, debt in the form of the liability assumed to pay benefits to pension scheme beneficiaries will not generally be considered to be given as chargeable consideration in relation to such transactions. However, any consideration given in the form of money or money’s worth for the transfer of the properties will be chargeable to LBTT.

Revenue Scotland has also confirmed that if LBTT has been paid they will consider a repayment and applications should be made by amending their original submission.

This is good news for those that may want to move pension providers but currently hold commercial property in their portfolio. This brings the treatment of these types of transfers back in line with HM Revenue and Customs so as not to disadvantage those who hold Scottish properties in their pension schemes.

In-specie transfers should not be confused with in-specie contributions where Stamp Duty Land Tax (England) and Land and Buildings Transaction Tax (Scotland) would apply.



Recent press reports have suggested that the National Insurance Fund will run out of money by 2032. The truth is rather less straightforward.

Talk of the National Insurance Fund (NIF) running out of cash is nothing new. Look back through Techlink and you will find a Bulletin based on similar story doing the rounds in October 2014. On this occasion what seems to have prompted the doom-mongering is a blog from the Government Actuary’s Department (GAD) on the NIF’s future issued in December. This in turn was based on the Government Actuary’s Quinquennial Review of the National Insurance Fund as at April 2015, which emerged last October.

Let us begin by making clear what the NIF is not. It is not a fund designed to finance benefits over the long term from contributions and investment returns in the way that a typical final salary pension scheme fund operates. When it started life in 1948 it was such a real fund, but these days it is best described as an accounting element in the Treasury’s balance sheet.

The following formula broadly explains how the NIF changes throughout a financial year

NIF at start of year
+NICs received during year
– NIC allocation to NHS funding
+Interest earned during year on NIF brought forward
+Treasury Grant
State pension and other benefit payments* during year

=NIF carried forward to next year

*  The main benefits are: Incapacity Benefit/Employment and Support Allowance (contributory only), Bereavement Benefits, Jobseeker’s Allowance (contributory only) and Maternity Allowance,

In practice the cash inflows of NICs and outflows of benefit payments and NHS allocation mean the NIF is more a conduit for money in transit than an accumulating fund. HMRC data shows in 2016/17 for Great Britain there were inflows (after the NHS allocation) of £98.3bn and outflows of £99.5bn, producing a net reduction of £1.2bn in the NIF to £21.9bn. The NIF has been trending downwards for some while: at the beginning of 2010/11 it was £48.8bn.

The NIF’s decline in 2016/17 was somewhat illusory. In 2015/16 there was a Treasury Grant of £9.6bn paid into the NIF, but in the following year there was none. The Treasury Grant is a variable top-up payment from general taxation and is limited by the Social Security Act 1993 to 17% of total benefits payable. In parallel the GAD recommends that the minimum size of the NIF should be 1/6th (16.7%) of annual payments to provide a reserve for short term fluctuations, eg arising from a recession.

The decline in the Treasury Grant to nil in 2016/17 was down mainly to a jump in Class 1 National Insurance contributions following the end of defined contribution contracting out and the related NIC rebates. The phasing in of increased State Pension Age (SPA) for women also helped to lower the overall increase in pension payments (92% of all outflows in the year). The windfall from the demise of contracting out and increasing SPA (including the move to a common SPA of 66 by the end of 2020) mean that the GAD projects a rise in the NIF to over £45bn by 2024/25, assuming the Treasury Grant remains at zero. Thereafter a decline sets in which is only marginally slowed by the SPA increase to 67 between 2026 to 2028. On the GAD’s calculations, the NIF will be exhausted by 2032.

To keep the GAD’s 1/6th reserve will therefore need to Treasury Grant to be reinstated. However, even that will not be enough to keep the NIF in the black by 2040, once the next SPA rise to 68 (2037-2039) is over unless the 17% statutory ceiling on the Treasury Grant is changed. At this point the question of whether NICs should be raised enters the GAD considerations. Any increase is focussed on Class 1 NICs, which accounted for over 96% of all NIC income to the NIF in 2016/17.

The current Class 1 total rate is 25.8%, of which 3.95% is allocated to NHS Funding, leaving 21.85% to enter the NIF. The GAD calculates that “Assuming no other financing was provided, at the end of the projection period [2080], the Class 1 NIC rate that would be required to cover benefit expenditure is projected to be around 28%.” This was translated in the GAD blog to “around 5% higher than the current rates”.

As ever with long term projections, there are considerable uncertainties. The fact that the crunch is some years off may encourage political procrastination, particularly when the inter-related issue of NHS funding is more pressing. The ‘obvious’ solution of raising NICs would exacerbate intergenerational inequity. The time may be nearing (post-election, naturally) when NIC and income tax is combined and applied to all income, not just earnings.


Chargeable event gains – the interaction with student loan repayments.

We recently came across the interesting question of whether a client with an outstanding student loan would be required to repay part of the loan if they had incurred a chargeable event gain on an investment bond.

As a general rule, student loan repayments are based on any individual’s income for the tax year. There are two types of plan available and the individual has to make loan repayments of 9% of their income over the minimum amount of:

  • £17,775 for Plan 1
  • £21,000 for Plan 2

In addition, from the date of the first payment interest is also payable and depends on which plan the individual has selected.

More details on student loans can be found on the HMRC website here.

However, according to the student loans company, where an individual has savings income of more than £2,000 a year, they may have to make additional student loan repayments.

Savings income includes interest on stocks, shares or savings. And, as we know, chargeable event gains are treated as savings income and taxed as such.

The student loan company states:

‘HM Revenue & Customs will advise you if you need to make any payments directly to them in respect of student loans once they have assessed any Self Assessment tax return you submit to them.’

Note the individual has to declare any chargeable event gain via their self assessment return, regardless of whether or not there is any liability to income tax on the gain.

While there is no certainty as to whether or not HMRC will definitely ask for a repayment, it is helpful for individuals to be aware that they could be required to repay some of their student loan in these circumstances. Of course, in some cases individuals may prefer to repay part/all of the student loan as it will save them having to pay interest on the loan repayments.


HMRC’s latest Trust Statistics 2018 shows an overall decrease in the number of UK family trusts and estates which are required to self-assess.

HMRC published its Trusts Statistics 2018 yesterday. It has been reported that the number of UK family trusts and estates which are required to complete a full self-assessment return has fallen from 164,500 in 2014/15 to 158,500 in 2015/16.

HMRC states that the decrease in the number of trusts and estates covered by these statistics may be a result of gradual changes in behaviour following an increase in the trust tax rate in 2004 which could have made trusts less attractive.

Currently, the rate of tax payable on the non-dividend income of discretionary trusts is 45% (above the £1,000 standard rate band).  Dividends received by the trustees of discretionary trusts do not qualify for the current £5,000 dividend allowance (which will decrease to £2,000 in 2018/19) and are all taxed at 38.1% (above the £1,000 standard rate band).   Capital gains on investment gains are taxed at 20% beyond the trust’s annual exemption (normally half that for individuals).

Interestingly, even with increased income tax rate(s), the total income reported by trusts and estates increased over the year whereas capital gains tax liabilities decreased. But it’s not all about tax, because trustees have other reporting obligations which need to be satisfied and, of course, in some cases day to day administration which needs to be carried out can be onerous.

For this reason, many trustees favour life assurance-based investment bonds (UK and offshore) as they are non-income and non-capital gains producing assets.  This means that the trust administration is simplified as it keeps them out of assessment until a chargeable event gain arises – and, in many cases, segment/cluster assignment is chosen as a means of passing the income tax liability on to a beneficiary. Note, however, that the assignment could generate a capital exit charge where the trust is discretionary or flexible in nature.



The rise in auto-enrolment contribution rates in April coincides with the Budget changes to income tax and NICs for 2018/19. So far, little attention has been given to the interaction. It looks as if the people worst hit in terms of the greatest extra deductions from pay will be those with earnings marginally above the 2017/18 higher rate threshold.

Ros Altman explained at last year’s Technical Connection Conference, the reason for moving the auto-enrolment contribution increases from October to the following April was to tie in with tax and NIC changes. The hope was that the usual indexation process for the personal allowance, income tax and NIC bands would ease the pain of higher contributions (or at least muddy the waters). And you thought it was just George Osborne scrimping a little saving on the cost of pension contribution tax relief…

The press is now latching onto the forthcoming rise in the employee contribution rate from 1% to 3% (assuming the employer pays the minimum required). However, once you add in the tax and NIC changes announced in the Budget, the picture is rather more nuanced than the headlines suggest. Here are a three of (non-Scottish) examples that make the point.

Employee earning £26,000 a year

2017/18 2018/19
Basic rate (£26,000 – £11,500) @ 20% =             £2,900.00 (£26,000 – £11,850) @ 20% =             £2,830.00
NICs 12% (£26,000-£8,164) @ 12% = £2,140.32 (£26,000-£8,424) @ 12% = £2,109.12
AE (20% relief) (£26,000-£8,164) @ 0.8%  = £142.69 (£26000-£8424) @ 2.4% =  £421.82
Total deductions £5,183.01 £5,360.94
Change in net pay -£177.93 (-£3.42 pw)


Employee earning £46,350 a year

2017/18 2018/19
Basic rate (£45,000 – £11,500) @ 20% =             £6,700.00 (£46,350 – £11,850) @ 20% =             £6,900.00
Higher rate (£46,350 – £45,000) @ 40% =  £540.00 NIL
NICs 12% (£45,000-£8,164) @ 12% = £4,420.32 (£46,350-£8,424) @ 12% = £4,551.12
NICs 2% (£46,350 – £45,000) @ 2% =  £27.00 NIL
AE (net of tax relief ) (£45,000-£8,164) @ 0.6%  = £221.02 (£46,350-£8,424) @ 2.4%  = £910.22
Total deductions £11,908.34 £12,361.34
Change in net pay   -£453.00 (-£8.71 pw)


Employee earning £50,000 a year

2017/18 2018/19
Basic rate (£45,000 – £11,500) @ 20% =             £6,700.00 (£46,350 – £11,850) @ 20% =             £6,900.00
Higher rate (£50,000 – £45,000) @ 40% =  £2,000.00 (£50,000 – £46,350) @ 40% =  £1,460.00
NICs 12% (£45,000-£8,164) @ 12% = £4,420.32 (£46,350-£8,424) @ 12% = £4,551.12
NICs 2% (£50,000 – £45,000) @ 2% =  £100.00 (£50,000 – £46,350) @ 2% =  £73.00
AE (net of 40% tax relief ) (£45,000-£8,164) @ 0.6%  = £221.02 (£46,350-£8,424) @ 1.8%  = £682.67
Total deductions £13,441.34 £13,666.79
Change in net pay   -£225.45 (-£4.34 pw)


The individual earning £46,350 suffers the biggest loss because:

  • Their gross contribution rate triples;
  • They lose higher rate tax relief on all their pension contributions because they cease (just) to be higher rate taxpayers;
  • They are caught by the full increase in the AE contribution upper limit of £1,350; and
  • They suffer the same £1,350 increase in the upper earnings limit for full rate (12%) NICs.

Those further up the earnings scale do not suffer as much because of the benefit of higher rate relief on contributions.



FCA have issued a consultation on transitional provisions which delay the effect of changes that align the FSCS compensation levy year with the financial year for Life and Pensions intermediation class.

Following consultation, including with the Financial Services Compensation Scheme (FSCS), the FCA recently made changes to the FSCS funding arrangements as part of a broader review of FSCS funding.

One of the changes was to align the FSCS compensation levy year with the financial year. The FCA have since become aware that a practical implication of this change is a different allocation of costs to the life and pensions intermediation class which was not intended. They have therefore decided to consult on transitional provisions which delay the effect of this.

The provisions will ensure that the life and pensions intermediation class will continue to benefit from support from the retail pool over the next few months, consistent with the FSCS’s public messaging on this.

The consultation includes transitional provisions to:

  • allow the 2017/18 compensation levy year to run to its original time frame;
  • require the FSCS to run a nine-month compensation levy year for the period 1 July 2018 to 31 March 2019 with pro-rated class thresholds; and
  • delay the introduction of arrangements for firms who pay fees on account by one year until 1 April 2019.

In addition the consultation includes minor clarifications to the new rule about levy paying arrangements for firms who pay fees on account.



The Registered Pension Schemes and Overseas Pension Schemes (miscellaneous amendments) Regulations 2018 have been laid.

The Regulations make changes to the information which a scheme administrator of a registered pension scheme is required to report to HMRC as a consequence of the reduced level of the money purchase annual allowance (“MPAA”) from £10,000 to £4,000 with effect from the tax year 2017-18. The changes, in line with UK schemes, are also reflected in the information that the scheme must give to the member when the MPAA has been triggered.

It also introduces a new reportable event where a scheme ceases to be or becomes a Master Trust scheme.

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Our Professional Network: Video

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