The Public Accounts Committee (PAC) has had its turn at criticising the HMRC approach to high net worth individuals (HINWIs). 

Late last year the National Audit Office (NAO) published a report on HMRC’s approach to the tax affairs of high net worth individuals (HINWIs). In 2009 HMRC established a unit to focus on these individuals, then defined as having a net worth of more than £20 million. The threshold was cut in 2016 to £10 million. At the start of 2015/16 HMRC reckoned there were around 6,500 HINWIs, roughly 1 in every 5,000 of the taxpayer population. Predictably, they pay a significant amount of tax: over £4.3bn in 2014/15 of which £3.5bn was income tax and national insurance (1.3% of the total revenue for those taxes) and £880m was capital gains tax (15% of all CGT).

The NAO report (see our earlier Bulletin) came to a must-try-harder conclusion and it has now been the turn of the Public Accounts Committee to make very similar judgements in a report just issued. The PAC’s effort has six main conclusions and recommendations:

The NAO has examined how the HINWI unit is working and reported the following:

HM Revenue & Customs (HMRC) lack of transparency has eroded public trust in a fair tax system and makes it more difficult for the department to explain what it does well.

The PAC had two main beefs under this heading. Firstly, “HMRC publishes little information about the approaches it takes or the number of criminal investigations and prosecutions in progress.” Secondly, HMRC could not explain why HINWI income tax receipts had fallen by £1 billion (20%) between 2009/10 and 2014/15, while receipts from all taxpayers had increased by £23 billion (9%) over the same period.

Quite why HMRC struggled to provide an answer is strange. 2009/10 was the year before the pre-announced arrival of 50% tax, which in earlier analysis HMRC reckoned meant £16bn of income was brought forward from 2010/11, swelling tax receipts for 2009/10. The most likely people to income shift – and those with the most income to shift – were HINWIs.

HMRC’s approach to dealing with the very wealthy suggests that they get help with their tax affairs that is not available to other taxpayers.   

HMRC provides each high net worth individual with a “personal customer relationship manager”, supposedly to ensure the right amount of tax is paid. The PAC were unconvinced by HMRC’s assertion that there was a clear line between giving a view on potential transactions and giving tax advice. In addition, the PAC bemoaned the fact that while calls from most taxpayers to HMRC call centres are recorded routinely, meetings and phone calls with HINWIs are not recorded. 

HMRC has not been tough enough in dealing with tax evasion and avoidance by the very wealthy, and it does not know whether its activities are enough to deter non-compliant.   

The PAC criticism here echoes the NAO comment about the relative lack of criminal prosecutions – only two (of which one succeeded) in the five years to March 2016. Since 2012, HMRC has issued 850 penalties totaling £9 million to HINWIs; an average penalty of £10,500. As the PAC notes “That seems too small an amount to change the behaviour of multi-millionaires…” 

Collecting the right amount of tax from high net worth individuals is made harder because they do not have to declare details of their wealth.  

The PAC is concerned that HINWIs, like all taxpayers, do not have to supply details of their assets. Other countries, such as Australia and Japan take a different approach. Ominously, the PAC says that HMRC has been looking at what further information high net worth individuals could be required to report and that the issue “is currently being considered by ministers”.

The rules on ‘image rights’ as they are applied in football and some other industries are being exploited.  

This is a complex area, exacerbated by the fact that many of those with image rights are non-doms. HMRC currently has open enquiries about image rights on 43 footballers, 8 agents and 12 clubs. The PAC “were appalled to hear that not all football clubs are providing HMRC with data under a voluntary agreement struck with the English Premier League.” 

HMRC has not yet assessed the strengths and weaknesses of its approach to collecting tax from high net worth individuals or considered the different approaches it could take.   

Again, this repeats an NAO comment. Indeed, the PAC uses some of the same words: “HMRC has yet to work out exactly what works and why in its current approach, or where and how it might be improved.” 

There is nothing too surprising here, apart from the apparent universal memory-loss on the impact of introducing 50% income tax. What is worrying is the idea of reporting assets as well as income and gains. 


Zurich is to pay approx. £220,000 in damages due to misleading inheritance tax advice given by one of its representatives. 

The High Court has ordered Zurich to pay £223,000 in damages to a woman who was given inheritance tax advice by one of its appointed representatives. The product provider was Allied Dunbar which was bought out by Zurich in 1998.

The case [Angela Lenderink-Woods and Zurich Assurance Ltd, Zurich Advice Network Ltd, Cherry Lenderink, [2016] EWHC 3287 (Ch) Case No: A50MA133] concerned Angela Lenderink-Woods, who was born in the UK but who acquired a domicile of dependency in the Netherlands following her marriage to a Dutch naval captain in 1944, after which she lived in a number of overseas locations. According to the judgment, the claimant, Angela Lenderink-Woods, was introduced to Allied Dunbar financial planning consultant Huw Davies by one of her daughters in 2001, when she was 80 years old. Since 1980 she has been resident in Costa Rica.

She had an investment portfolio that was inherited from her mother in 1996 that was managed by National Westminster Bank. By 2001, the portfolio was worth £567,700 and, because it was based in the UK, was potentially subject to inheritance tax.

Davies was a tied adviser, and following his advice, Lenderink-Woods moved her portfolio into three Allied Dunbar products: a gift and loan trust scheme, an offshore investment bond, and a portfolio bond, the assets of which were overseen by a discretionary manager.

Lenderink-Woods argued that the Allied Dunbar products were not suitable for someone not domiciled in the UK. She said the charging structure was “unnecessarily burdensome” and that despite Davies saying a 2 per cent charge would apply, once commission, Allied Dunbar’s charges, and the DFM’s charges were taken into account, it was much higher.

In 2011, Lenderink-Woods’s daughters also became concerned about Allied Dunbar’s charges.

Zurich later admitted that the charges under the bonds were about 4.5 per cent the first year and then at least 2.3 per cent each year over a 10-year period.

The court heard that at their original meeting, Davies identified that Lenderink-Woods had a gross estate of £586,677 for inheritance tax purposes, and advised there was a potential IHT bill of £137,871, which was subsequently revised to a lower figure of £130,300.

The High Court noted: ‘It is very difficult to see where that figure came from given the terms of the investment analysis which Mr. Davies prepared. It is £72,000 less than Mrs. Lenderink-Woods’ total estate as estimated by Mr. Davies in the sum of £658,677, whereas the nil rate band was then £242,000: but it undoubtedly includes within the scope of the potential charge to UK inheritance tax at least some of Mrs. Lenderink-Woods’ offshore assets.’

Thus, the High Court judge overturned the decision of the Financial Ombudsman Service who previously ruled in favour of Zurich.

The damages award of £223,000 was reached by calculating the impact on the fund value to July 2016 of the ‘unnecessary charges’ that were imposed through Davies’ scheme.

This case goes to show that while the client had sought advice, the product recommendation was not suitable given the client’s circumstances – product suitability is essential and as a tied adviser in some cases it is likely that there isn’t a suitable product within the tied range so this needs to be recognised rather than offering what could be deemed to be non-suitable advice.


The Bank of England’s latest quarterly inflation report has again notched upwards post-Brexit growth forecasts. 

February 2 was another “Super Thursday”, the day when the Bank of England reveals its interest rate decision (unchanged) and publishes its quarterly inflation report (QIR). The August QIR, coming six weeks after the Brexit vote, was a gloomy affair, although three months later the October QIR lifted some of the dark clouds. This latest QIR is once again cheerier than its predecessor:

For 2017, GDP growth is now forecast to be 2.0%, the same as the Office for National Statistics’ preliminary estimate for 2016. In November, the Bank had forecast 1.4%, while the August QIR penciled in just 0.8%.

Looking beyond the current year, the Bank sees growth of 1.6% in 2018 and 1.7% in 2019. In November, its estimates for both were 0.2% less.

The net effect is that the Bank now expects overall output in the three years to the end of 2019 will be 1% higher than it thought in November. Another way of looking at that number is to say the impact of Brexit on the economy will be 1% less than previously suggested, bringing it down to a 1.5% overall loss of GDP.

The Bank attributes the better growth numbers to:

  • fiscal easing in the Autumn Statement – more borrowing by Mr. Hammond than Mr. Osborne had planned;
  • a firmer outlook for global growth (The Donald effect);
  • supportive UK financial conditions (low interest rates and a weakened currency); and
  • consumer spending holding up well, with a corresponding future drop in the household saving ratio to its lowest level since 1963.


CPI inflation is expected to be “back around 2% in the data for February” (up from 1.6% in December). The Bank sees inflation peaking at 2.8% at the start of next year, before “falling gradually back to 2.4% in three years’ time”. It says, “This overshoot is entirely because of sterling’s fall, which itself is the product of the market’s view of the consequences of Brexit.” This lets it off the hook somewhat, as the Bank is not meant to be in the business of controlling the exchange rate.

The Governor of the Bank of England reiterated the Bank’s stance that “its tolerance for above-target inflation is limited”, but then made clear that the Monetary Policy Committee’s “remit specifies that it must balance the speed with which it intends to return inflation to the target with the support that monetary policy provides to jobs and activity”. While money market projections for base rate have edged up since the November QIR, the graph of implied future short term rates still does not suggest a return to a 0.5% base rate until around the end of 2018.


Background – the weakness of sterling following the Brexit Referendum; Capital gains tax and foreign currency; Capital gains tax and other assets; Chargeable event gains on single premium bonds 


The weakness of sterling following the result of the Brexit Referendum has prompted some to review the calculation of gains/losses arising on the disposal of assets denominated in foreign currency.  In this article we take a look at what these calculations involve.

Capital Gains Tax & Foreign Currency

Since 6 April 2012 currency gains and losses realised within an individual’s, trustees’ or personal representatives’ foreign currency bank account have been wholly exempt from capital gains tax.

Also exempt, under section 269 Taxation of Chargeable Gains Act 1992, is foreign currency for personal expenditure outside the UK incurred by an individual or their family or their dependents.  Included in this exemption is expenditure on the provision or maintenance of any residence outside the UK.  

Capital Gains Tax & Other Assets

Self-evidently, when an asset is purchased in sterling and realised for sterling the sterling capital gain will not include any gain/loss from currency fluctuations.  In contrast, where an asset is purchased in a foreign currency and sold in that foreign currency, in calculating the capital gain for UK tax purposes the acquisition cost at the date of purchase has to be converted to sterling at the exchange rate applying on that date and the disposal proceeds converted to sterling at the exchange rate applying on the date of disposal.  A sterling gain/loss is thus computed for UK tax purposes.

Take Bill for example:

In 2003 Bill bought shares in a French company for $200,000.  They cost him £109,000 (exchange rate $1.83 to the £).  He sold the shares in December 2016 for $250,000 – a gain of 25% in $ terms.  However, in December 2016 the $ stood at $1.25 to the £, so the sale proceeds of $250,000 valued the shares at £200,000.  The sterling gain of £91,000 is subject to capital gains tax.  The gain of £91,000 represents a gain of 45.5% in sterling terms when the exchange rate fluctuations are factored in. 

Chareable Event Gains

When a UK resident investor takes out a UK or non-UK single premium bond (Bond) it may be denominated in sterling or in a foreign currency. For the purposes of calculating a chargeable event gain when the Bond is denominated in sterling throughout, the position is straightforward, i.e. the chargeable event gain calculation is carried out in the usual way and the investor will be subject to UK income tax in accordance with their own tax position.

When the Bond is denominated in another currency, HMRC gives guidance in its Insurance Policyholder Taxation Manual (IPTM3700) on the calculation of the chargeable event gain. In these circumstances the gain should be computed in the foreign currency and then converted to sterling at the exchange rate applicable at the date of the chargeable event.  The example below illustrates this.

Using the same figures as for Bill the single premium for the Bond would be $200,000.  Assuming no withdrawals from the Bond, the $ gain is $50,000 which gives a sterling equivalent of £40,000 at an exchange rate of $1.25 to the £.  Unlike with shares which are subject to capital gains tax, the chargeable event gain of £40,000 would be subject to income tax. Again, there is no provision for an adjustment to be made for currency fluctuations.

When a policyholder has enjoyed a period of tax residence outside the UK, in certain circumstances the chargeable event gain can be reduced to reflect the period of non-UK residence.  This is known as “time-apportionment” or, more commonly, “non-resident” relief.

In brief terms, the benefit of non-UK residence is that the amount of any chargeable event gain that might be available for a particular policy is reduced by a fraction.  This fraction reflects the period of time the person liable to pay the tax on the chargeable event gain has been non-UK resident during the period the policy has been in force or owned by them depending on the circumstances.

As it is the sterling chargeable event gain that is reduced the fact that the policy may have been denominated in a currency that is not sterling will not impact on non-resident relief.

The examples above highlight the difference in the calculation of gains under a life assurance policy and other assets which are denominated in a foreign currency.   It demonstrates how gains can be accentuated (or reduced) quite arbitrarily by currency movements.


HM Treasury have published the response the consultation on the Pensions Advice Allowance.

The government announced at Budget 2016 that, as recommended by the Financial Advice Market Review (FAMR), it would consult on introducing a Pensions Advice Allowance. This would allow people to take £500 tax free from their defined contribution pension to redeem against the cost of financial advice. The purpose of the allowance was to encourage people to take advice by allowing the advice to be more affordable because it would be paid for using tax relieved funds through their pension and not out of income.

The main outcomes of the consultation are as follows:

  • the allowance will be limited to up to £500 per use;
  • the allowance will be available at any age;
  • individuals will be permitted three uses of the allowance in their lifetime, no more than once per tax year;
  • the £500 will not be taxed on withdrawal from the pension pot, regardless of the individual’s income;
  • the allowance can be withdrawn from defined contribution pensions and hybrid pensions with a money purchase or cash balance element;
  • the payment of the allowance must be made direct from the pension scheme to the adviser;
  • the allowance will only be available for regulated financial advice;
  • the allowance can be used alongside the tax exemption for employer arranged pensions advice;
  • the allowance will be publicised through nudges designed by the Financial Advice Working Group and signposted by Pension Wise; and
  • the allowance will come into force from April 2017
  • HMRC will publish full guidance on the allowance shortly after it comes into force.


This has to be a positive move alongside all the pension freedoms, encouraging more people to take advice about their retirement. It is great news that it isn’t just a one-off payment and that it will be allowed before age 55 to help with planning for retirement rather than just dealing with the issue when it arises.


Automatic Enrolment Regulations have been amended with further exceptions so that an employer may use their discretion in enrolling workers who have made an election for Individual Protection 2016 or Fixed Protection 2016.

The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) regulations 2017/79 have been laid.

These regulations amend the employer duty to automatically enrol their workers into a qualifying pension scheme. Existing regulations give employers discretion to automatically enrol their workers into a qualifying pension scheme in certain circumstances, including where an individual worker may be financially disadvantaged by being enrolled into pensions’ saving. These regulations add to the circumstances in which employers have discretion in relation to lifetime allowance and to ensure this aligns with changes to the value of the lifetime allowance as set out in the Finance Act 2016.

Workers that have elected for Fixed Protection 2016 and/or Individual Protection 2016 do now not need to be automatically enrolled – without the amendment the employer would be obliged to continue making contributions (unless the individual took action to opt-out), and this could result in the worker being subject to penalty tax charges on their accrued pension benefits. 


The Pension Protection Fund and Occupational Pension Schemes Levy Ceiling and Compensation Cap) Order 2017 laid before parliament.

The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling and Compensation Cap) Order 2017 increases two amounts used by the Board of the Pension Protection Fund:

  • the levy ceiling, which controls the maximum amount of levy the Board can charge pension schemes; and
  • the compensation cap, which helps control Pension Protection Fund expenditure by limiting the amount of compensation payable.


The increases are applicable from 1st April 2017

The Secretary of State is required to uprate the levy ceiling annually in line with the general level of earnings in Great Britain, unless there is no increase in the general level of earnings. The review period is the period of 12 months ending on 31st July each year. In addition, they are also required to make an Order to increase the amount of the compensation cap where he concludes that the general level of earnings in Great Britain has gone up over the period of a tax year. The increases ensure that rises in average earnings are taken into account so that they maintain their value.

The Order specifies that the increase in the general level of earnings for the year ending on 31st July 2016 is 2.6 per cent over the previous year. Therefore the amount of the levy ceiling for the financial year beginning on 1st April 2017 is £1,007,249,095 increased from £981,724,264.

The Secretary of State determined that average earnings increased by 2.9 per cent in the 2015/16 tax year. That percentage is applied to the current compensation cap (£37,420.42) to provide an uprated cap of £38,505.61 from 1st April 2017. When applying the 90 per cent provision to that uprated cap it will provide, at age 65, a maximum level of compensation of £34,655.05.

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