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10/01/18
LEGACY TO JERSEY CHARITY TAXABLE IN THE UK

England & Wales Court of Appeal rule that UK assets of a Jersey domiciled individual will be liable to UK inheritance tax even though they were left to a charitable trust subject to Jersey law.

By way of background, in the case in question, Routier V HMRC [2017] EWCA Civ 1584, Beryl Coulter died in 2007 domiciled in Jersey. Her estate included £1.8 million of assets located in the UK. These assets were part of her residuary estate, which she left in trust to build homes for elderly residents of the parish of St Ouen in Jersey or, in default, to fund a charity, Jersey Hospice Care.

On her death, her executors, claimed charitable relief from UK IHT as set out in s23 of the Inheritance Tax Act 1984 (IHTA 1984). Section 23 broadly states that property is given to charities if it becomes the property of charities or is held on trust for charitable purposes only. The definition of charity in Finance Act 2010 schedule 6 part 1 includes the condition that charities must be subject to the jurisdictions of a UK court or that of another EU member state.

However, HMRC refused the relief on the basis that this did not apply to gifts made outside the UK even though it accepted that the Coulter Trust has only charitable purposes as a matter of English law.

Mrs Coulter's executors challenged HMRC's decision in 2014, but having lost in the England & Wales High Court they then took the case to the Court of Appeal in 2016.

The denial of relief in this case derived from a 1956 House of Lords ruling in the case of Camille and Henry Dreyfus Foundation Inc v IRC [1956] AC 39. This judgment affirmed that the phrase 'trust established for charitable purposes only' as used in the Income Tax Act 1918 contained an implicit limitation such that trusts only qualify if they are governed by the law of some part of the UK. HMRC interpreted this as meaning that the Coulter Trust is not a charity within the meaning of the relevant law and thus the bequest is not entitled to charitable relief from UK IHT.

The Court of Appeal found that the 60-year old Dreyfus judgment was correct and that the High Court judge in the earlier Coulter hearing, Mrs Justice Rose, had been right to note a discrepancy in requiring a court to ascertain whether the purposes of a body governed by foreign law were charitable purposes as a matter of UK law.

However, the executors also argued that HMRC’s interpretation of section 23 would constitute an unlawful restriction on the free movement of capital between the EU member states and third countries under Article 63 of the EU treaties under which Jersey is a third country but HMRC also rejected this argument.

As neither the executors nor HMRC presented enough detail regarding the Article 63 argument to enable the Court of Appeal to decide, the appeal was dismissed and the court ordered the parties to return after they have prepared full arguments on this ground.

The case was re-heard in June 2017 and it was found that Jersey is not part of the UK for the purposes of EU freedoms and HMRC is entitled to refuse to grant relief on gifts to non-UK charities unless there is a mutual agreement between the UK and the country in which the charity is based. There was no such agreement with Jersey at the time of Mrs Coulter’s death so the appeal was dismissed. The charitable trust did not therefore meet the requirements of section 23 IHTA 1984 or Finance Act 2010 so relief from IHT was not available in this particular case.

The outcome of this case is interesting as it provides some guidance to those who are planning to leave assets to non UK charities.LEGACY TO JERSEY CHARITY TAXABLE IN THE UK

England & Wales Court of Appeal rule that UK assets of a Jersey domiciled individual will be liable to UK inheritance tax even though they were left to a charitable trust subject to Jersey law.

By way of background, in the case in question, Routier V HMRC [2017] EWCA Civ 1584, Beryl Coulter died in 2007 domiciled in Jersey. Her estate included £1.8 million of assets located in the UK. These assets were part of her residuary estate, which she left in trust to build homes for elderly residents of the parish of St Ouen in Jersey or, in default, to fund a charity, Jersey Hospice Care.

On her death, her executors, claimed charitable relief from UK IHT as set out in s23 of the Inheritance Tax Act 1984 (IHTA 1984). Section 23 broadly states that property is given to charities if it becomes the property of charities or is held on trust for charitable purposes only. The definition of charity in Finance Act 2010 schedule 6 part 1 includes the condition that charities must be subject to the jurisdictions of a UK court or that of another EU member state.

However, HMRC refused the relief on the basis that this did not apply to gifts made outside the UK even though it accepted that the Coulter Trust has only charitable purposes as a matter of English law.

Mrs Coulter's executors challenged HMRC's decision in 2014, but having lost in the England & Wales High Court they then took the case to the Court of Appeal in 2016.

The denial of relief in this case derived from a 1956 House of Lords ruling in the case of Camille and Henry Dreyfus Foundation Inc v IRC [1956] AC 39. This judgment affirmed that the phrase 'trust established for charitable purposes only' as used in the Income Tax Act 1918 contained an implicit limitation such that trusts only qualify if they are governed by the law of some part of the UK. HMRC interpreted this as meaning that the Coulter Trust is not a charity within the meaning of the relevant law and thus the bequest is not entitled to charitable relief from UK IHT.

The Court of Appeal found that the 60-year old Dreyfus judgment was correct and that the High Court judge in the earlier Coulter hearing, Mrs Justice Rose, had been right to note a discrepancy in requiring a court to ascertain whether the purposes of a body governed by foreign law were charitable purposes as a matter of UK law.

However, the executors also argued that HMRC’s interpretation of section 23 would constitute an unlawful restriction on the free movement of capital between the EU member states and third countries under Article 63 of the EU treaties under which Jersey is a third country but HMRC also rejected this argument.

As neither the executors nor HMRC presented enough detail regarding the Article 63 argument to enable the Court of Appeal to decide, the appeal was dismissed and the court ordered the parties to return after they have prepared full arguments on this ground.

The case was re-heard in June 2017 and it was found that Jersey is not part of the UK for the purposes of EU freedoms and HMRC is entitled to refuse to grant relief on gifts to non-UK charities unless there is a mutual agreement between the UK and the country in which the charity is based. There was no such agreement with Jersey at the time of Mrs Coulter’s death so the appeal was dismissed. The charitable trust did not therefore meet the requirements of section 23 IHTA 1984 or Finance Act 2010 so relief from IHT was not available in this particular case.

The outcome of this case is interesting as it provides some guidance to those who are planning to leave assets to non UK charities.
Author: Technical Connections
03/01/18
In a case concerning furnished holidays lets BPR was denied whilst in a livery stable business it was allowed.

Two recent First-tier Tax Tribunal decisions, with somewhat contradictory outcomes, have addressed the question of whether a business is classified as an investment business (which doesn't qualify for 100% IHT relief) as opposed to a trading business which can attract full relief.

The first case - Executors of the Estate of M Ross (deceased) v HMRC [2017] UKFTT 507 (Ross v HMRC) - concerned a furnished holiday let (FHL) business. Eight holiday cottages in Cornwall were let as self-catering units. They were adjacent to a hotel which the deceased had previously owned. The guests from these units were allowed to take advantage of some of the hotel's amenities, for instance they could order bar snacks and take breakfast there. Various other additional services were offered, such as a mid-week clean and change of bed linen. It was argued that the provision of all these extras changed the character of the business from being one which was mainly an investment in land to one of providing a holiday experience and that the investment in land was a subordinate part and therefore the business qualified for BPR.

However, the Tribunal did not agree. Whilst they accepted that the level of services was more extensive than those provided in other FHL businesses where BPR was denied, they ultimately concluded that the essence of the activity remained the exploitation of land in return for rent.

The second decision - The Personal Representatives of the Estate of Maureen W Vigne v HMRC [2017] UKFTT 632 (Vigne v HMRC) - concerned a livery stable business on a large (30 acres) piece of land. The personal representatives (PRs) of Mrs Vigne argued that her business was significantly more than merely letting or licensing the land for use by the horse owners as she also provided valuable additional services, such as health checks of the horses, providing them with hay, providing worming products and removing manure from the fields. In this case the Tribunal accepted the argument and concluded that "no properly informed observer could have said that the deceased was in the business of just holding investments". It should be added that the PRs alternatively claimed agricultural property relief (APR) on the basis that the asset constituted 'agricultural property'. However, this claim was rejected.

As always, each case was decided on its particular facts. However, there was one interesting point made by the Tribunal in the Vigne case. Notably, it concluded that rather than starting with the idea that a business based on a holding of property is one of making or holding investments, and working out whether any factors have changed that view, the correct approach is to make no assumption but establish the facts and then determine whether they indicate that the business is wholly or mainly one of holding investments.

The cases remind us of the importance of BPR as one of two (with APR) extremely valuable reliefs available in IHT planning. It will also be interesting to see whether the approach suggested by the Tribunal in the Vigne case will be followed in future cases.
Author: Technical Connections
27/12/17
HMRC has recently published Newsletter 92 and of notable interest is the following:
New Pensions Online service
In Pension Schemes Newsletter 90 HMRC explained that they were bringing forward transferring existing scheme administrator data onto the new Pensions Online Digital Service to April 2018. They explained that this was to allow existing pension scheme administrators to register new schemes on the new service.

Scheme administrators were asked to log into Pension Schemes Online and check that their details are complete and up to date.

It has been noted that there are still a lot of scheme administrators who have not logged onto the current online service since April 2015. HMRC urge those that have not logged in to do so to update their details because if the information is insufficient they may have to register as a new user on the new service from April 2018.

Accounting for Tax Return – paying tax to HMRC
HMRC note that in some cases where tax is paid to HMRC the relevant charge reference has been missing, which has resulted in additional charges because the payments are unable to be matched up.

HMRC reminds those making payments that “The charge reference is provided on screen once you have successfully submitted an Accounting for Tax Return. It is also available on the scheme summary page 24 hours later. If any interest has accrued, we will issue a letter containing a separate charge reference for the interest.”

Lifetime allowance service
HMRC remind people that it is only possible to apply for IP16 and FP16 through the appropriate links and not directly through their personal tax account. Those who have applied will be able to see their reference numbers on their personal tax account even though the application was made separately.
Author: Technical Connections
14/12/17

It may have been presented as a measure that purely affects companies, but the move to end indexation relief for corporate capital gains will hit many individuals, too. Read HMRC’s policy paper “Corporation Tax: the removal of capital gains tax indexation allowance from 1 January 2018” and you might think there is nothing to worry about. Under the standard heading “Impact on individuals, households and families”, the document says: “This measure has no impact on individuals or households as it only affects companies.”


On the evening of Budget Day, we emailed the HMRC contact named in the paper and asked whether the measure would affect life companies despite the reference quoted above. The HMRC reply was a classic straight bat: “I can confirm that, as life assurance companies are subject to corporation tax on their capital gains, this measure will apply to them”.

In terms of UK life company fund returns, just how much policyholders returns will be hit depends upon three factors:
  • The rate of capital growth within the fund;
  • The rate of RPI inflation; and
  • The reserving rate used by the life company to cover its eventual tax liability.

The Office for Budgetary Responsibility’s long term RPI estimate, which it needs to estimate the cost of servicing index-linked gilts, is 3% (against 2% for long term CPI).

The corporate tax rate on gains within the policyholders’ funds is set by s102 of Finance Act 2012 as “the rate at which income tax at the basic rate is charged for the tax year that begins on 6 April in the financial year”. When the Act was passed, basic rate was 20% and the CGT rate for basic rate taxpayers was 18%. In his final March 2016 Budget George Osborne cut 8% from the CGT rates (other than for residential property and carried interest), but made no changes to policyholder taxation. Thus, the policyholders’ fund rate is now double the 10% CGT rate payable by basic rate taxpayers and matches that for higher and additional rate taxpayers. As mentioned in our earlier Bulletin, gains on collective investments are subject to special rules, effectively spreading the tax charge over seven years. Long ago this used to mean that there was a useful saving, but in a world when seven-year gilts yield less than 1%, any discount for deferral is not significant and for simplicity’s sake can be ignored.

This leads to a calculation that if a fund’s underlying assets have capital growth at least matching 3% RPI, the reduction in annual returns due to the Chancellor’s measure will be a maximum of:

3% x 20% = 0.6% pa

Two other areas where the boundary between the individual and corporate investor blur are:
  • Property holding companies The various tax moves against residential buy-to-let investment have encouraged the use of companies to hold residential property portfolios. This approach has always had the potential problem of double taxation of capital gains – once within the company and again for the individual on their shareholding. Indexation relief has helped to offset this somewhat, but will no longer from January 2018. The tax rate involved is corporation tax – 19% for now but 17% from 2020 (which has already been legislated for). As a result, the return reduction is marginally less than applies to policyholder funds.

To gain a feel for the impact, consider that over the last ten years to September 2017 the average UK house price rose by 19.1% according to the Land Registry. The corresponding indexation factor for the period was 32.3%, meaning that indexation would have comfortably negated any tax charge. Over the last five years, the corresponding figures are 33.0% (yes, average UK house prices fell between 2007 and 2012) and 12.7%, so indexation would have removed well over a third of the gain from tax.
  • Private/personal investment companies These have become a popular way of holding investment assets for the wealthy, thanks to the fall in corporation tax rates, indexation relief on gains and relative simplicity of operation.

The Sun newspaper has already a story about a “£500 million stealth tax on ten million savers”. No doubt the ABI will be making similar points in its representations. Watch this space…
Author: Technical Connections
14/12/17
While there were no surprise announcements affecting shareholder directors there may be an opportunity to consider some planning options as we discuss.

The Autumn Budget did not involve any surprise announcements affecting shareholder directors. Nevertheless, this may be a good time to consider some planning options as we discuss below.

Leaving funds in the business

For those business owners who have sufficient ‘spendable’ income, the most effective way to limit their overall tax bill is to choose to leave profits in the company rather than draw either a dividend or salary. With the top rate of income tax currently at 45%, there is an obvious argument for allowing profits to stay within the company, where the maximum tax rate (for the Financial Years beginning 1 April 2017 and 2018) will be 19% and is scheduled to reduce to 17% in 2020.

The government is aware that the disparity in the rates of corporation tax and income tax gives rise to opportunities for tax reduction and it is material. This is particularly the case where the director leaves profits in the company, pays a low rate of corporation tax on those profits with the resulting cash then forming an asset of the company. That cash can potentially then be accessed by the shareholder then liquidating the company and only paying CGT at 10% provided entrepreneurs’ relief is available. This strategy has tax risks in terms of future changes to the eligibility for CGT entrepreneurs’ relief and inheritance tax business property relief. Also, where a company is liquidated by a shareholder and that shareholder starts up a similar business within 2 years of liquidation (a “phoenix company”), the capital arising on the earlier liquidation can be recategorised as a dividend for tax purposes.

Money left in the company is also money exposed to the claims of creditors, so professional advice should be sought before turning a business into a money box. Furthermore, to combat this practice, the government is looking at ways in which they can prevent this practice by imposing higher tax charges in such circumstances.

It is worth noting that excess cash can result in the loss of IHT business relief if the cash is treated as an excepted asset because it has no business purpose.

Payments to a director/shareholder in 2017/18
For those who need to draw funds out of the company, the next issue that will arise is what is the most tax efficient way to withdraw profits – assuming, of course, that the director needs to withdraw the cash.

One planning point that a number of companies operate is short-term loans to director/shareholders. In this respect, the government has made short-term loans from a company to a shareholder less tax attractive by imposing a 32.5% tax charge if those loans are not repaid within 9 months of the end of the accounting period in which the loan is made. This tax can be reclaimed if and when the loan is repaid.

The more conventional method of drawing profits out of a business is by remuneration or dividends. The dynamics on whether a director/shareholder should draw remuneration from a company by way of remuneration or dividends has changed over the last couple of years because of the taxation changes on dividends.

To recap, since 2016/17 the tax charge on a dividend for a basic rate taxpayer is 7.5%, 32.5% for a higher rate taxpayer and 38.1% for a 45% taxpayer.

However, all taxpayers will be entitled to a £5,000 dividend allowance (effectively a £5,000 nil rate band). This is due to reduce to £2,000 in 2018/19 and so the position will then change again.

Currently, for a higher rate shareholder/director taxpayer who has their full dividend allowance available, drawing dividends will still be more financially attractive than bonuses.

For those who are looking at remuneration strategies in the run up to the end of the 2017/18 tax year, the best strategy to adopt will obviously depend on all the tax circumstances of the individual or company. But despite the increased tax rate on dividends in excess of the allowance, dividend payments will mostly remain the more attractive option due to the NIC saving. Of course, with the reduction in the dividend allowance to £2,000 in 2018/19, the position will need to be reviewed for that tax year.

In 2018/19, the dividend allowance will reduce to £2,000 and this means that the net benefit to a director taking a dividend will reduce to £14,319 (40% taxpayer) and £13,297 (45% taxpayer). Therefore the dividend route will still remain preferable but with the net benefit having been somewhat reduced.

Employing the spouse
The Employment Allowance (EA) which increased to £3,000 with effect from 6 April 2016, is not available for employers with only one employee – typically the director/shareholder. In such cases it may therefore be worth the company employing the spouse. For 2017/18 it will make little sense for the spouse to be paid more than the primary threshold (£157 a week) because above this level employee’s NIC are payable. Any gain in net income has to be considered against the hassle of paying (and deducting) NICs.

In 2017/18 the employee will still be liable for NICs once their earnings exceed £157 a week, but the employer’s NIC liability will be removed by the EA until their sole employee earns more than about £29,903 a year.

Where a non-taxpaying spouse can be legitimately employed in a business, income of up to £11,500 can be paid in 2017/18 (£11,850 in 2018/19) without income tax liability. The payment of remuneration should be deductible for the employer provided reasonable services are provided by the employee – the deduction being based on the “wholly and exclusively” principle. Earnings would need to be restricted to £8,164 to avoid employer and employee NICs.

Such tax planning must always ensure that the spouse’s level of pay can be justified, i.e. in accordance with the work/role they are due to carry out. An increase from, say, £7,500 a year to £29,903 a year just to utilise the EA could well invite HMRC scrutiny. Where the employed spouse has little other income, an increase to make full use of their personal allowance is clearly now much more attractive.

If the director/shareholder was prepared to transfer shares to a spouse, it may be possible to use the spouse’s £5,000 dividend allowance on any subsequent dividend declaration in 2017/18. However, it is important to note that such a transfer must be outright and unconditional.

Pension Planning
Pension contributions remain an effective means of reducing tax for the small business. Last year, provisions were introduced to reduce the Annual Allowance for those with adjusted income (AI) in excess of £150,000 and threshold income in excess of £110,000. For somebody with AI of £210,000 their annual allowance reduces to the minimum of £10,000. People caught by this provision should review their level of contributions.

The carry forward rules allow any unused annual allowance to be carried forward for a maximum of three years. Thus 5 April 2018 is the last opportunity to rescue unused relief from 2014/15. With the introduction of a tapered reduction in the annual allowance for 45% taxpayers from 6 April 2017, there is even more reason for directors/shareholders to consider using the carry forward rules in the run-up to 6 April 2018.
Author: Technical Connections
22/11/17
The Budget is today, so rumours are starting to swirl, and there is even the odd fact, too:
First time buyer SDLT tweak. This has gained popularity, either in the form of a temporary “holiday” or reduced rates. It would be more of a headline grabber than a measure to solve the housing crisis, given that it would not increase supply but would add marginally to demand. The average UK home price for a first time buyer according to Nationwide is £181,325, on which SDLT is £1,127. However, the UK-wide figure hides a significant spread of values: in London the average is £413,189 (SDLT £10,660), while in the North, North West, Yorkshire/Humberside and Northern Ireland it is below the current £125,000 SDLT starting point.
Buy-to-let: round 5? The measures introduced by George Osborne have done little to cool the BTL market, but raised a useful extra amount of SDLT – about £230m over the last four quarters, 26% of total residential SDLT. Mr Hammond might be tempted to turn the second property SDLT screw a little more, perhaps to fund the first time buyer initiative.
VCT/EIS clampdown This is virtually a given. In the wake of any venture capital changes there could also be a tightening of the rules on IHT business relief for AIM and unlisted companies.
Annual Investment Allowance (AIA) This has yo-yoed regularly, the most recent change being a cut from £500,000 to £200,000 at the start of last year. In the interests of encouraging investment and boosting productivity, Mr Hammond might return the AIA to its 2015 level.
Pensions tax relief It would not be a Budget without rumours about an attack on pension tax relief. The favourite for now seems to be a cut in the annual allowance to £30,000. Also receiving a few mentions is the idea that the pension valuation factor for DB schemes could be revised from the distinctly historic 20:1 to perhaps 25:1. Anything too radical would also be too politically risky – Mr Hammond’s has his fair share of opposition MPS sitting on the Conservative benches.
Smoke and mirrors Financial numbers tend to be reworked between Budgets for various reasons. The latest example is a statement from the Office for National Statistics about the treatment of housing association debt. The ONS indicated that proposed legislation will result in that debt and any subsequent borrowing being removed from the government’s accounts. This is reckoned to make about £60bn plus £5bn a year of red ink disappear from Mr Hammond’s famous spreadsheet.
Better government borrowing figures The day before the Budget, the October public sector finance data will be published. Ever since the start of 2017/18 borrowing has been less than the Office for Budget Responsibility (OBR) had projected and more good news for the Chancellor is likely (although arriving too late for the OBR’s revised projections).
Author: Technical Connections
05/11/17
HMRC has issued draft guidance on “Penalties for enablers of defeated avoidance” which will come into effect after Royal Assent of the Finance (No.2) Act 2017. The guidance explains the key concepts included in the legislation and explains to whom it is intended to apply, and how.
An enabler is any person who is responsible, to any extent, for any design, marketing or otherwise facilitating another person to enter into abusive arrangements. When such arrangements are defeated in court or at the tribunal, or are otherwise counteracted, each person who enable those arrangements may be liable to a penalty.

The legislation takes effect from 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 [date of Royal Assent]
the enabling action is taken on or after [date of Royal Assent]
The guidance also sets out how the enablers legislation interacts with:
The General Anti-Abuse Rule (GAAR) operated by HMRC and should be read in conjunction with the GAAR guidance
The Code of Practice on Taxation for Banks which is published and operated by HMRC
Professional Conduct in Relation to Taxation which is a document produced by seven leading professional bodies for their members working in tax.
Author: Technical Connections
02/11/17
DWP publish the third auto enrolment survey results, this time focussing on small and micro employers

The research detailed in this new report is the third study, commissioned in 2016 and focusing on small and micro employers. The Department for Work and Pensions (DWP) commissioned the first automatic enrolment research study in 2012 to explore the impact on large employers, and subsequently a second study in 2014 with medium-sized employers.

This report was commissioned to understand the impact of automatic enrolment on small and micro employers, and identify the main drivers of opt-out amongst their employees. This report presents findings from a survey of 70 small and micro employers who implemented automatic enrolment during 2016, as well as 65 employees.

Key Findings
Employers typically felt that automatic enrolment is a necessary and sensible policy, and that it was something they just had to ‘get on with’. Some, however, felt that the financial and time burden involved made automatic enrolment problematic for very small companies to implement.
Employers, like workers, felt the state’s role in providing for workers’ retirement must inevitably lessen, and most saw automatic enrolment as a sensible way to fill the gap in retirement income that this will leave.
When they actually had to start planning and implementing automatic enrolment, most employers found the cost and time burden involved to be lower than they had anticipated. As a result, we encountered very few small or micro employers who described issues with complying with their duties on time.
When seeking information regarding automatic enrolment and their own duties, employers usually relied heavily on The Pensions Regulator’s website, especially when first finding out about automatic enrolment. Once they had decided upon a provider, that provider’s website became the preferred information source for many.
Employers who already used an intermediary (for example an independent financial adviser, payroll, or accountant) tended to go to them for limited ‘free’ advice. Far fewer employers chose to employ an intermediary on an ad hoc basis to help them fulfil their automatic enrolment duties.
Most employers communicated automatic enrolment to their workers verbally and in informal contexts within the workplace, before distributing the statutory letters.
Employers were generally aware of the planned increases in the minimum contribution rate (phasing), and for those who were not, our explaining the policy to them did not cause much surprise or concern. Some expected to cover the additional costs associated with phasing from future wage increases. Some also expressed paternalistic concerns that their workers may opt out of after phasing.
Workers who remained in the workplace scheme after being automatically enrolled tended to accept that pensions are the responsibility of the individual, alongside that of their employer. Workers who opted out tended to be at the extremes of provision: either they felt they simply could not afford to save anything, or they had other pension provision that they already felt confident would provide the level of retirement income they needed.
Workers largely found out about automatic enrolment through the media and their employer: few sought out other written information. Where workers remained in a scheme after being automatically enrolled, their choice (if they made a choice at all) was usually quick and instinctive. In contrast, the decision to opt out tended to require more active thought, although those who opted out were typically much firmer and more confident in their choice than those who remained in.
Workers who remained members of the scheme following automatic enrolment appeared to be relatively relaxed about the first stage of phasing (the increase from one to three per cent worker contribution), having seen that the impact to date on their take-home pay had been low. A few were concerned about the rise to five per cent, particularly where this was exacerbated by other aspects of uncertainty in their lives, e.g. possible house purchases or potential salary increases. Workers who opted out tended not to be concerned about phasing, either because it made schemes even less affordable for them, or because they felt the increase would not deliver significantly better returns than the scheme had before phasing.
Author: Technical Connections
28/10/17
There have been few rumours about the contents of next month's Budget. It looks likely to be a quiet affair. The Autumn Budget is now less than six weeks away and so far there have been few rumours about it contents. There are several reasons for this:
  • We are at the start of the new Budget cycle and there has been no Spring Statement - as there will be from 2018 onwards - to provide any clues.
  • The backwash from spring 2017’s fiscal announcement - the March 2017 Budget - is still lapping around parliament in the form of Finance Bill 2017/19. This reached Committee stage in the House of Commons on 11 October.
  • The news released this week from the Office for Budget Responsibility (OBR) that it “is likely to revise down potential productivity growth in its November forecast, weakening the outlook for the public finances” may have been holding up decisions. To put not too fine a point on it, the money isn’t there for giveaways.
  • The political landscape for Mr Hammond is some way short of perfect. His March Budget was blown off course by a backbench rebellion over increasing Class 4 NICs. Back then the Conservatives had a parliamentary majority in their own right. Now the Government’s majority depends upon a confidence and supply agreement with the DUP and there are plenty of Conservative backbenchers unhappy with the Chancellor’s Brexit stance. Ordinarily, the first post-election Budget would be the occasion to push through unpopular (tax-raising or controversial) measures, but these are not ordinary times.

With all that in mind, here are a few thoughts on areas of interest:

Pensions

The latest set of HMRC data showing the cost of pension tax relief was enough to set the weekend personal finance columnists writing about a threat to higher rate contribution relief. In the political circumstances - remember Class 4 NICs - this looks very unlikely. David Gauke, who moved from the Treasury to the DWP after the election, told a conference in July that we “wouldn’t see any fundamental changes in the near future”.

“Fundamental” does not preclude some technical tweaks which raise revenue without ruffling too many feathers - a cut in the annual allowance to £30,000 or deferring the auto enrolment contribution rise to 8% until April 2020, for example.
One potential piece of good news is that the LTA is due to rise in line with CPI from 6 April 2018 (to about £1.03m) – unless Mr Hammond decides otherwise.


VCT, EIS and SEIS

The writing has been on the wall for venture capital schemes since the publication of the Treasury’s paper on patient capital in August. Despite the overhaul to investment rules that took effect just under two years ago, another revamp now looks likely. The target will be schemes aimed at “capital preservation” rather than high risk growth - the classic example being pub-based EISs. There is a flood of VCTs and EISs on the market at present: by tax year end it may be only a trickle.

Capital Gains Tax

George Osborne’s decision to cut CGT to a maximum of 20% (other than for carried interest and residential property) came as a complete surprise in his last (2016) Budget. Nobody had been lobbying for it, the result was a wider gap between income and capital taxation and it only benefited those few people (about 250,000 in 2013/14) with taxable capital gains exceeding their annual exemption. Mr Hammond could choose to revert to the old rates and win a few plaudits from the JAMs (just-about-managing), plus about £0.5bn a year.

SME tax

At present Corporation tax is due to fall to 17% in April 2020. It is possible that Mr Hammond could kick this reduction down the road - or abandon it completely - in response to gloomier OBR numbers and to spike (partially) Labour’s guns (their manifesto pledge was a 26% rate).

Lurking in the background is the Taylor Review of modern working practices, which is probably lodged on a dusty shelf after Mr Hammond’s failure to push through Class 4 NIC changes. Equally problematical for the Chancellor would be any attempt to extend what amounts to presumed employment rules for contractors, which were introduced in the public sector in April 2017.

Income tax

The Chancellor still has unfinished business here in terms of the promise (repeated in this year’s manifesto) to bring the personal allowance up to £12,500 and the higher rate threshold to £50,000 by 2020/21. That implies increases of £1,000 and £5,000 respectively over the next three years. Given the current inflationary outlook, the increased personal allowance will probably be covered by normal CPI indexation, but the lifting of the higher rate threshold will require a more concerted effort.

Politics and the tight financial backdrop suggest Hammond will just stick with something close to CPI indexation for both in 2018/19 – say an £11,900 personal allowance and a £46,500 threshold (implying a £34,600 basic rate band).

Fiscal drag will be left to do its silent worst on the fixed thresholds for high income child benefit tax charge (unchanged since January 2013), phasing out of the personal allowance and the additional rate (both of which are unchanged since introduction in 2010/11).

Investment taxation

The dividend allowance cut to £2,000 from 2018/19 is already in the Finance Bill 2017/19, but a further cut – to zero – is possible for the following year or 2020/21. The latter timing could be justified if the corporation tax cut to 17% is not altered, as it could be argued to be a necessary counter to further incorporation.

Other investment tax changes look unlikely, if only because of those restive backbenchers.

ISA

The increase in ISA contribution limits to £20,000 only took effect in April, so any change beyond a CPI linked increase looks unlikely. It will be interesting to see whether LISA attracts any attention – this Osborne inheritance has not had a particularly bright start to life.

Inheritance tax

Intergenerational equity is one of the flavours of the month at present. The Chancellor could use that as a starting point to initiate a review of capital taxes – IHT and CGT – which the Office for Tax Simplification called for long ago. This could examine something closer to a genuine inheritance tax, where the liability is based on the recipient rather than the donor. Such a structure encourages a greater spread of wealth.

In line with the likely moves against capital preserving venture capital schemes, it is possible the Chancellor will tighten up the rules on business relief for shareholdings in unlisted companies. This relief is looking increasingly anomalous when it extends to companies created and marketed solely for IHT mitigation purposes or to large AIM companies such as ASOS (with a market capitalisation of nearly £5bn).

Stamp duty land tax

SDLT is bringing in around £1.25bn a month to the Exchequer at present, 60% more than in 2013/14. Despite moans from estate agents about the stagnation of the £1m+ market, it is very hard to imagine Mr Hammond making any relaxation of rates or thresholds in the top bands. The politics of such a move would be highly dangerous. However, he might make a gesture by raising the lower threshold – currently £125,000 and even lower than the £150,000 proposed by the Welsh government – but do not expect much anything else.

We will keep an ear out for further rumours, but with everything else that is going on, this time around Mr Hammond may not want to break his own record (established in March) for the largest Finance Bill ever.
Author: Technical Connections
14/10/17
Making a will is not necessarily something any of us what to think about and although it isn't a service the Wealth Design Group provides directly we work with those who do to ensure it is done properly. As it is incredibly important for planning your future. Without a will, your estate will be distributed according to 'Rules of Intestacy' which will divide your estate in a pre-determined way. The Law Society states that “trying to make your own will, without legal assistance, can lead to mistakes or lack of clarity and could mean that your will is invalid.” So it is clear that preparing a will correctly is important but what is the best way to go about it? You either have the choice of using a will writing service or a solicitor.

There are many will writing services which tend to be cheaper. Generally speaking, a will writing service wold only be advised if you already have a good legal understanding and your will is considered to be straight forward. However, you must be sure that the will writer is legally qualified and belongs to one of these organisations:
• The Society of Will Writers
• The Institute of Professional Will Writers

As members of these groups:
• Have training that’s regularly updated
• are insured to cover legal costs if your will is challenged, and
• Follow a code of practice approved by the Trading Standards Institute

The Law Society advises “If you have a number of beneficiaries and your finances are complicated, it is even more important that you get a professionally trained solicitor to create your will.” The advantages to paying a little bit more for a solicitor means that they:
• Provide a reliable legal document
• Are highly regulated
• Are fully legally qualified
• Store your will safely

With a solicitor, you will also be rest assured of no mistakes as well as being protected if something goes wrong. We will be including a feature about the change in Wills written by an expert in our first newsletter of 2018.
Author: Steve Bennett, Wealth Design