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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 asset 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 many conditions. Broadly, the individual must 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

i) The numbers published for 2015-16 are not comprehensive as to manage the burden on industry reporting was optional for 2015-16 but compulsory from April 2016. The increase in reported payments seen in 2016 Q2 is expected to partly result from this.

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


  1. Figures are rounded to the nearest 1,000.
  1. Figures are rounded to the nearest £10 million.
  1. Includes taxable payments only.
  1. 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.
  1. 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 allow 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


The content of this newsletter is for information only. It does not represent personal advice or a personal recommendation and should not be interpreted as such. Please do not act upon any part of it without first having consulted an Independent Financial Adviser.


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