As promised at Budget 2016, the government has launched a consultation on proposals to change the current rules for part surrenders and part assignments of life insurance policies to prevent excessive tax charges arising on these products.

At the March 2016 Budget, the government announced its intention to change the tax rules for excess events on part surrenders and part assignments of life insurance policies, following consultation, so as to prevent gains arising which are disproportionate to the policy’s underlying economic gain.

The consultation, which runs from 20 April to 13 July 2016, invites views on three options for change designed to ensure disproportionate gains no longer arise, while maintaining the familiar and popular tax deferred allowance.

These options are:

  • Taxing the economic gain – this option would retain the current 5% tax deferred allowance but would bring into charge a proportionate fraction of any underlying economic gain whenever an amount in excess of 5% was withdrawn.
  • The 100% allowance – under this option no gain would arise until all of the premiums paid have been withdrawn, after which all withdrawals would be taxed in full, effectively changing the current cumulative annual 5% tax deferred allowance to a lifetime 100% tax deferred allowance. This is the simplest of all the options.
  • Deferral of excessive gains – this more complicated option would maintain the current method for calculating gains but would limit the amount of gain that could be brought into charge on a part surrender (or part assignment for value) to a pre-determined amount of the premium (e.g. a cumulative 3% for each year since the policy commenced), holding the remaining gain over until the next part surrender or part assignment when the process would begin again until final surrender when all deferred gains would be brought into charge.

The consultation document sets out the options in detail with examples illustrating how they would work in practice and considers the potential impacts on policyholders and insurers.

The options will be reviewed in the light of representations received and a response will be published in Autumn 2016 with a view to including legislation for the preferred option in Finance Bill 2017.

Artificial gains on life insurance policies will frequently arise where a large part surrender is taken early on in the policy lifetime. Because the gain is calculated as the excess over the allowable amount, this can result in income tax liabilities even though the investment has in reality shown little or no growth. The inequity of this aspect of the chargeable event regime was highlighted in the Joost Lobler case where the First Tier Tribunal was unable to offer a remedy to what a result that it referred to as ‘repugnant to common fairness’

Changes to the regime will provide relief for the huge number of policyholders that currently make ill-advised partial withdrawals instead of fully surrendering individual policies more tax-efficiently but could require significant system changes for the industry, have an effect on the market for life insurance products and/or add further complexity to the legislation depending upon which option is chosen to carry forward.


HMRC is seeking views on a revised draft of the IHT hallmark regulations having considered responses to an earlier consultation voicing concerns that the original proposals were too widely drafted. The new proposal focuses on arrangements that are contrived or abnormal, or that contain contrived or abnormal steps.

The IHT hallmark was introduced with effect from 6 April 2011 and has historically applied only to arrangements that seek to avoid IHT charges during a person’s lifetime. In July 2015, draft regulations expanding the existing hallmark to ensure that all types of IHT avoidance would have to be disclosed and removing the existing ‘grandfathering’ provision were published for consultation. While the revised draft regulations specifically exempted certain insurance based schemes, many who responded to the consultation – including Technical Connection – expressed concerns that the hallmark was so widely drafted it could be construed to catch a wide range of non-abusive arrangements including Loan Trust arrangements where there was no initial gift as well as bare trust versions of Loan Trusts and Discounted Gift Trusts on the basis that there was no ‘settlement’.

In the response document to the technical consultation published in July, the Government committed to revising the hallmark to take account of these concerns and, this week, have duly published for further consultation revised draft hallmark regulations, which now focus on arrangements that are contrived or abnormal, or that contain contrived or abnormal steps.

The conditions of the revised hallmark, both of which need to be met for an arrangement to be disclosable, are that:

  • The main purposes, or one of the main purposes, of the arrangements is to enable a person to obtain a tax advantage; and
  • The arrangements are contrived or abnormal or involve one or more contrived or abnormal steps without which a tax advantage could not be obtained

The latest consultation document provides examples of ordinary tax planning arrangements which may result in a tax advantage yet are not, in the eyes of the Government, caught by the revised hallmark because they are not contrived or abnormal (and so fail to meet the second condition). These include:

  • Straightforward, outright gifts
  • Lifetime transfers into flexible or discretionary trusts
  • Investment into assets that qualify for relief from inheritance tax; and
  • Arrangements that are within a statutory exemption – for example paying full consideration for the continued use of land or chattels that have been given away
  • Certain other insurance-based arrangements, that could potentially be caught, are specifically excepted under the revised draft regulations.

These are:

  • Loan trusts – whether discretionary or bare and whether or not there is an initial gift;
  • Discounted gift schemes – again whether discretionary or bare and whether established in conjunction with a life insurance or a capital redemption policy;
  • Flexible reversionary trusts – including arrangements where the retained rights can be varied or defeated by the trustees; and
  • Split or retained interest trusts

The consultation on the revised draft hallmark runs until 13 July 2016.

The revised draft hallmark regulations address many of the concerns voiced in response to the earlier consultation and will provide reassurance and provide reassurance that the use of legitimate, mainstream tax-planning tools such as loan trusts and discounted gift trusts should not be caught within DOTAS regardless of how they are structured.

This is a sensible approach from the Government as there is a clear difference between these instruments and the avoidance schemes which are under pressure from HMRC’s efforts to strengthen the tax-avoidance disclosure regime.


The ownership of private limited companies is now under greater scrutiny and this extends to situations where trustees are the owners. Here we set out an overview of the new “PSC” Rules and how they might affect trustees who have sizeable shareholdings in companies.


The Small Business, Enterprise and Employment Act 2015 (SBEE) introduces Part 21A of the Companies Act 20016. This means that from 6 April 2016, limited companies (and limited liability partnerships) must maintain a PSC register. A PSC register is basically a register of people who have significant control over the company.

This is designed to reveal the identities of individuals who have control over private UK companies. It is only concerned with situations where the owner has a certain minimum level of control (see below). Also, in general, the register will only give details of those people who have immediate control and not ultimate control.

The register must also record details of people who exercise control of a company through a trust. In this context if the trustees themselves have significant influence and control in their capacity as trustees, their names will need to be on the register.

And in these cases if an individual, in turn, exercises significant influence and control over the trust and the trustees, their names will also have to be included on the register.

It should also be noted that the register is open to public inspection on the payment of a fee. Failure to maintain the register is a criminal offence which can be punished with a fine or even a prison sentence.

Persons with significant influence and control

The key point underpinning these rules is that to be included in the register a person must exercise significant influence and control over the company (Schedule 1A to the Companies Act 2006). For this to be the case, the individual must:

  • hold directly or indirectly more than 25% of the shares in the company or more than 25% of the voting rights in the company
  • hold the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company
  • has the right to exercise significant influence or control over the company.

In the case of a trust, the trustees of a trust will be PSCs and will need to be included on the register if the trust meets any of the ‘individual tests’ above.

The term ‘a significant influence or control’ has been clarified by statutory guidance which was laid before Parliament on 6 April and is due to come into force in May 2016.

Relevant legal entity (RLE)

Only individuals can be PSCs. The rules are extended to other legal vehicles by the introduction of an RLE.

An RLE is a legal entity that:-

  • if it were an individual would be a PSC and
  • is subject to its own disclosure requirements.

A relevant legal entity is subject to its own disclosure requirements if it is subject to Part 2A of the Companies Act 2006, it is a traded company or if it is a description specified in the regulations.

The register

The company must maintain a register of PSCs that can be inspected. It must supply a copy in exchange for a fee.

Obtaining the information

The company is under a duty to take reasonable steps to find out if a person is a registerable person or a RLE in relation to the company.

Reasonable steps are those a reasonable person would take if he or she had the same information as the company – it will include reviewing available existing information and documentation (e.g. articles of association, shareholders’ agreements and voting patterns). If there are gaps in the information, it must send a notice to any person it has reasonable cause to believe should be recorded on its PSC register. It is a criminal offence not to comply with this requirement. The company can also serve a notice on anyone it knows or has reasonable cause to believe can identify a registrable PSC or RLE, or who knows the identity of someone else likely to have that information requiring them to respond within a month.

The particulars that a company must keep of a registerable PSC include name, address, date of birth and period and nature of control. In certain circumstances an exemption may be given which avoids the need to include the information on the register (for example, a person can demonstrate that disclosure would put them as serious risk of violence or intimidation due to the activities of the company).


Where a trust meets one of the conditions outlined above (or would do so if it were an individual), the rules need to be considered at two levels:

(i) The trustees themselves will need to be included on the register if the trust would have needed to have been, had it been an individual. So if the trust holds more than 25% of the shares in the company, the trustees need to register as PSCs.

(ii) Where the trust controls more than 25% of shares of a company and there is somebody who has significant influence and control over the trust, that person or persons will need to be included on the register. This may include the settlor or beneficiaries.

With regard to (i), the trustee may need to register because the trust meets one or more of the control rules – see above or, if the trust is a trust corporation, it may an RLE.

As regards (ii) the trustees may need to maintain accurate records where an individual has significant influence or control over the trust so that they can inform that person’s details to the company in which they hold more than 25% of the shares.

Significant influence or control

Draft Statutory Guidance exists on the meaning of ‘significant influence or control’, published by the Department for Business Innovation & Skills (BIS) in January 2016. The guidance gives example of rights or behaviour that would be regarded as giving rise to influence or control.

In relation to trusts, these rights or behaviours include:-

  • right, in general, to appoint or remove any of the trustees
  • right to direct the distribution of trust assets
  • right to direct investment decisions of the trust
  • right to amend or revoke the trust

The guidance also suggests that persons who are regularly involved in the running of the trust are likely to exercise significant influence or control over a trust. For example, a person issues instructions as to the activities of the trust which are generally followed. Typically, a settlor or protector who retains common administrative power (eg. to appoint and remove trustees) will be regarded as having influence or control. A settlor with these powers who wishes to stay off the register may wish to give up these powers.

Registration not required

Registration is not required if an individual holds an interest in the company keeping the register because of share ownership in one or more RLEs. In that case, the RLE will be registered and the PSC will not (unless the RLE also keeps a register). Also interests held as a nominee are not registerable. Shares or rights held by a nominee, are treated as if they are held by the person for whom the nominee is acting.

Issuing notices

A company that is required to keep a PSC register must take reasonable steps to find out whether there are any PSCs or RLEs in relation to the company and, if there are obtain the details for the PSC register. The company can serve notices to obtain this information.

A trustee who is served with a notice requiring them to identify PSCs and RLEs will need to think carefully about how to respond. The starting point is to have in mind the fact that failure to respond, or failure to respond accurately, is a criminal offence. In the case of a corporate trustee, the trustee and its officers commit the offence.

Trustees will need to consider carefully whether there are any PSCs or RLEs of whom they are aware. They will need to be particularly careful in assessing whether there are any individuals who have significant influence or control over the affairs of the trust. It may be that with sufficiently robust trust administration, trustees will be able to put hand on heart and say that there are no PSCs or RLES_ However, the guidance has been widely drawn and so trustees will need to act cautiously.

Where complicated beneficial interests exist (ie. there are a series of trusts) legal advice should be taken.

Where a person has failed to comply with a PSC Notice, the company can serve that person with a warning notice followed by a restriction notice. The effect of the restriction notice is to freeze that person’s interest. This means that any transfer of the shares will be void, it will not be possible to vote and no payment can be made in respect of the interaction including a dividend.

Responding to notices

The failure to respond to a notice on PSCs and RLEs is a criminal offence. Trustees will therefore need to be careful – particularly in determining whether an individual has significant influence or control over the affairs of the trust.

The introduction of PSC register is a fundamental change in the disclosure of control of companies. Where trustees hold shares in companies that are affected, they will need to be properly prepared to deal with the new complex regulatory framework. Trustees will need to carefully balance the need for confidentiality and the obligation to disclose information either under the Act or in response to a notice.

In this respect, trustees may face a dilemma. On the one hand, they owe fiduciary obligations to keep the trust confidential and yet the PSC Register will be available for public inspection. On the other hand, failure to provide information on receipt of a notice from the company is a criminal offence which, at worst, carries a two year prison sentence, or a fine.

Trustees who qualify as PSCs are also under a proactive obligation to provide updated PSC information to the company as and when necessary.

Affected trustees should start thinking about how they will respond to PSC notices now, as once a notice is received, trustees must respond within a month.


TPR has promised to keep a close eye on the developing master trust pensions market over the coming years, and will “engage directly” with any multi-employer schemes that are giving it cause for concern.

The Pensions Regulator (TRP) has issued its Corporate Plan 2016/2019. This sets out TPR’s main focus over the next three years.

TPR’s top – 10 priorities are:

  1. Successfully implement automatic enrolment
  1. Protect consumers from poorly governed master trusts
  1. Effectively regulate defined benefit schemes
  1. Effectively regulate public service pension schemes
  1. Maintain confidence in pensions
  1. Improve the quality of scheme governance
  1. Extend our regulatory influence
  1. Increase member engagement with pensions
  1. Develop our people
  1. Be an effective and efficient regulator

This bulletin focuses on the second of these priorities of; “Protect consumers from poorly governed master trusts.”

Addressing the “quality and viability” of these trusts is high among the regulator’s top 10 priorities, second only to implementation of AE. So it can therefore be seen that risks associated with poor master trust arrangements is seen by TPR as being a significant threat to the success of AE.  TPR’s concerns relate to the view that some of these schemes have been set up “off the radar” so to speak and they may not be sustainable in the long term. TPR is pledging action to address those risks. However, but the big uncertainty is about the work the Department for Work and Pensions is doing on the costs of winding up. Will the DWP force providers to commit to paying these costs?

Master trusts enable pension scheme providers to manage a defined contribution (DC) scheme for several employers under a single trust arrangement, making them particularly attractive to smaller businesses which are now legally required to automatically enrol their workforce into a suitable pension scheme but which do not necessarily have the resources to run a scheme of their own.

However, these arrangements can be subject to less regulatory scrutiny than FCA-regulated contract-based schemes, prompting the government to pledge earlier this year that it would introduce new rules as part of “the first appropriate vehicle” that will receive full parliamentary scrutiny.

As part of this work, the plan makes it clear that TPR will promote those schemes run by providers authorised by the Financial Conduct Authority (FCA) as well as those that have obtained independent assurance via the voluntary master trust assurance framework.  TPR has stated that it will engage directly with master trusts where it has a concern, but the truth is that it is doing this already. This behind the scenes work will be a key part of the TPR’s efforts in the next three years.

Currently, master trusts can obtain independent assurance of their quality, measured against a voluntary assurance framework developed by the Institute of Chartered Accountants of England and Wales (ICAEW). However, there is no legal requirement that master trusts obtain this assurance. Independent assurance allows master trusts to quickly demonstrate their compliance with the regulator’s mandatory governance standards for all DC schemes.

TPR said that it planned to work with ICAEW on a revised version of the assurance framework as part of the corporate plan, as well as with the FCA and government to “identify and address unmitigated risks to members of master trusts”. According to the corporate plan, TPR’s biggest concerns are that if large master trusts fail members could be “forced to meet the administration costs as a result of [their] disorderly exit from the market” without a sponsoring employer, while smaller schemes may not have enough members or assets to deliver sufficient investment returns.

This move by TPR is to be welcomed. However, one glaring omission from TPR’s Corporate Plan, is any reference to dealing with pension scams. As fraudsters favouring the use of SSAS arrangements what are of course “regulated” by TPR and not the FCA. Concentrating on educating the public is all well and good, but is it sufficient without a more robust and pro-active approach from TPR?


The Department of Work and Pensions has published a series of questions and answers on the StSP aimed at Stakeholder. However, this document would also be useful for advisers.

The Department of Work and Pensions (DWP) has published a series of questions and answers on the StSP aimed at Stakeholder. However, this document would also be useful for advisers.

As well as the Q&As, they have also published a set of slides which would form a very good basis for a seminar to clients or prospects.


The POS has no moved its complaint service on-line in a bid to make it easier for individual to initiate a complaint.

The Pensions Ombudsman Service (POS) has streamlined its complaint process by introducing an online application option, in addition to the retaining its existing paper-based process. This online form can be used for complaint applications about personal and occupational pensions means applicants no longer have to download and print out an application form and then post it off once the form is completed; although this option is still available.

Fiona Nicol, Casework Director at the Pensions Ombudsman Service, commented: “Our new online form means it’s now much quicker and easier for our customers to complete an application. The online form is the first phase of a project that will ultimately deliver a secure area for the website so future applicants can share supporting documentation more easily and create a profile allowing them to login to see how their application is progressing.”

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