PFS What's new bulletin - February II

TAXATION AND TRUSTS

 

The ability to remotely witness a Will has ended

(AF1, JO2, RO3)

 

The relaxation of the requirement for Will attestation, allowing for remote witnessing, which ended on 31 January 2024.

 

As no last-minute extension was announced by the Government, Wills can no longer be witnessed by video link.

 

Prior to the Covid-19 pandemic, in simple terms a validly executed Will was:

 

1. In writing
2. Signed by the person making it (‘the testator’), in the physical presence of two independent witnesses; and
3. The witnesses have signed it in the presence of the person making it.

 

Lockdown restrictions suddenly created the need for change and, so, the Government amended Section 9 of the Wills Act 1837 to say that, in relation to Wills made after 31 January 2020, “presence” includes presence by means of video conference or other visual transmission, so that witnesses to Wills did not need to be physically present at the signing, but could be legally present, over a video link. Section 9 of the Wills Act 1837 states:

 

• No will shall be valid unless—

 

(a) it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and

 

(b) it appears that the testator intended by his signature to give effect to the will; and

 

(c) the signature is made or acknowledged by the testator in the presence of two or more

witnesses present at the same time; and

 

(d) each witness either—

 

(i) attests and signs the will; or

 

(ii) acknowledges his signature,

in the presence of the testator (but not necessarily in the presence of any other witness),

but no form of attestation shall be necessary.

 

 

 

[(2) For the purposes of paragraphs (c) and (d) of subsection (1), in relation to wills made on

or after 31 January 2020 and on or before 31 January [2024], “presence” includes presence by means of videoconference or other visual transmission.]

 

The process of video witnessing of Wills was applied for an initial two-year period from 31 January 2020, but was then further extended to 31 January 2024.

 

The Law Commission has undertaken a consultation, which ended in December 2023, seeking views on whether a new Wills Act should permit electronic wills, either immediately or by allowing for them to be introduced later.

 

However, unless the Government reintroduces video witnessing of Wills, this is no longer an option and witnesses must be in person. The ability to witness a Will’s execution by video link has ended.

 

 

Comment

Whilst social distancing and lockdown restrictions made remote witnessing a necessity for all for a time, it is not at all clear just how popular this method was as time went on, given that the process is far more complicated than simply having to have two witnesses physically present. Although, of course, the challenges faced by those wanting to make a Will and who were (and still are) also shielding and isolating have not gone away.

 

 

Benefits in kind and the ending of P11Ds

(AF1, RO3)

 

The Government recently announced that it will mandate employers to report and collect income tax and Class 1A National Insurance contributions (NICs) on employment benefits through payroll software from 6 April 2026. This means that the 2025/26 tax year will be the last year that employers will be able to file P11Ds and P11D(b)s with HMRC in most cases.

From this date, tax on employment benefits will be collected in real time and not through tax codes in arrears. Class 1A NICs will also be collected in real time for each pay period rather than at the end of the year.

 

Currently, employers have two options.

 

The first option is to report via a P11D submission. This adjusts the employees’ tax codes the tax year after the benefits or expenses were received. This can cause problems with employees’ understanding of why tax codes change mid-tax year, as P11Ds don’t need to be reported to HMRC until 6 July following the tax year end in which the employee received the benefit. This means that an employee could wait over a year before seeing any tax related to benefits they’re receiving being deducted from their pay. P11D(b) submissions share the deadline of 6 July, and employer class 1A NICs must be paid by 22 July (if paying electronically). 

 

The second option for employers is to payroll benefits. This method allows the benefits and expenses to be taxed in real time through pay as you earn (PAYE).

 

Although, employer-provided living accommodation, and interest-free and low-interest (beneficial) loans, cannot be payrolled and, therefore, any employer providing these benefits must also complete P11Ds, even if they payroll other benefits, for example, company cars.

 

HMRC provided some further information on the next steps in its latest Employer Bulletin. It said that it will engage with stakeholders to discuss its proposals to inform design and delivery decisions, and draft legislation will be published later in the year as part of the usual tax legislation process. HMRC has also said that it will work with industry experts to produce guidance, which will be made available in advance of 6 April 2026.

 

The plans are currently in development and HMRC welcomes stakeholder views on delivery proposals ahead of the implementation. General feedback and suggestions relating to the proposals can be submitted to the mailbox policyemploymentbenefitsexpenses@hmrc.gov.uk. HMRC says that it may not be able to respond to all suggestions, but it will consider them.

 

 

Basis period reform - HMRC writes to unrepresented taxpayers (AF1, AF2, JO3, RO3)

 

HMRC has written letters to unrepresented taxpayers they believe may be affected by basis period reform.

 

For those with an accounting year end that is not 31 March, 5 April, or any dates between, the amount of their profits subject to income tax in 2023/24 will be affected by basis period reform.

How this will impact on them depends upon a variety of factors, but one consequence for many people will be that more than twelve months of profits will be taxable in 2023/24. The earlier in the tax year their accounting year ends, the greater the impact. For example, if they have an accounting year end of 30 April – a date once recommended for maximum tax deferral – then, after special transitional relief, they could find themselves with the equivalent of a little over 14 months profits taxable in 2023/24. This is because, under the pre-2023/24 basis year system, with an end April date, the calculation of tax was based on roughly 11 months of profit in the previous tax year. For example, in 2022/23, the taxable profit would be based on the trading period ending on 30 April 2022.

 

In 2023/24, the advantage of 30 April year end morphs into a disadvantage because tax will be based on:

 

1. Trading income to 30 April 2023, plus
2. Trading income from 1 May 2023 to 5 April 2024 (341/366ths of the trading year to 30 April 2024 as 2024 is a leap year), less
3. Any unused overlap relief available (broadly, the very first 11 months of profit that would have been taxed twice when they started their business).

 

By default, the sum of 2 and 3 (the transitional profits) will be divided by five and spread over five tax years – 2023/24 to 2027/28.

 

Any year end planning needs to take account of this income boost, which will also apply for the following four tax years, unless they opt out of the automatic transitional relief. An opt out can make sense in some circumstances, but the decision to do so and the strategies to then adopt require expert advice.

 

More information on basis period reform can be found in the Association of Taxation Technicians (ATT)’s dedicated FAQs.

 

In the week commencing 19 February, HMRC has started sending out letters to those taxpayers who they believe may be affected, but don't have an agent. A copy of this letter can be found here.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT PLANNING

 

January inflation numbers

(AF4, FA7, LP2, RO2)

 

The UK CPI inflation rate for the January 2023, which was 4.0%, unchanged from December.

 

 

The CPI annual rate for January was unchanged from December at 4.0%. A 0.2% rise had been the consensus forecast, according to Reuters. Eurozone annual CPI inflation saw a 0.1% fall for January, leaving its annual rate at 2.8%, while the USA’s annual CPI inflation, announced on Tuesday, was down by 0.3% to 3.1%, a smaller fall than had been expected by the market – hence Wall Street’s 1.4% drop on Tuesday.

 

January 2024’s monthly CPI reading was down 0.6% from December’s, the same drop as in January 2023 (when annual inflation was running at 10.1%). The CPI/RPI gap narrowed by 0.3% to 0.9% with the RPI annual rate falling by 0.3% to 4.9%. Over the month the RPI index fell by 0.3%.

 

The Office for National Statistics (ONS)’s favoured CPIH index was unchanged from December at an annual 4.2%. The ONS attributed the unmoved level of CPIH inflation to a combination of counterbalancing factors:

 

Main upward drivers

 

Housing and household services. The annual inflation rate for housing, water, electricity, gas, and other fuels was 2.5% in January 2024, up from 1.9% in December 2023. The main upward contribution came from gas, which rose by 6.8% on the month compared to a monthly rise of 0.3% last year (when the Government’s £2,500 Energy Price Guarantee (EPG) effectively froze prices). The January 2024 gas price rise led to the annual deflation rate of gas reducing to 26.5% in January 2024 compared with 31.0% in December 2023.

 

There was also a strong upward contribution from electricity, which rose by 4.0% on the month, compared with a monthly rise of 1.2% last year. This led to the annual deflation rate of electricity declining to 13.0% in January 2024, compared with 15.4% in December 2023.

 

The waning of deflation in each category was widely anticipated because of the increase in the Ofgem price cap in January 2024. The price of electricity, gas, and other fuels in January 2024 is 18% lower than at its peak in January 2023. However, as the ONS notes, the January 2024 price is still 89% higher than it was in January 2021.

 

Transport. Overall prices fell by 0.5% in the year to January 2024, compared with a fall of 1.3% in December 2023. Transport prices fell by 2.8% on the month to January 2024, compared with a monthly fall of 3.6% a year ago.

 

The slower pace of decline in the annual rate was mainly the result of second-hand cars, with motor fuels also providing a strong upward contribution. However, these were partly offset by a strong downward contribution from air fares.

 

Main downward drivers

 

Furniture and household goods. Prices rose by 0.5% in the year to January 2024, compared with a rise of 2.5% in the year to December 2023. Prices fell by 3.1% between December 2023 and January 2024, compared with a fall of 1.1% between the same two months a year ago.

 

The decrease in the annual rate was mainly the result of downward effects from furniture and furnishings, where prices fell by 5.2% on the month, the largest monthly fall since January 2020. Some of the items that contributed larger downward effects were kitchen base and wall units, leather settees, and dining tables and chairs. Carpets and other floor coverings also provided a downward contribution because of the effect from tufted carpets and from floor rugs.

 

It remains to be seen how far the issues with transport through the Red Sea will impact prices in this division over coming months.

 

Food and non-alcoholic beverages. The annual rate of food and non-alcoholic beverages has fallen from 8.0% in December 2023 to 7.0% in January 2024, which is the lowest annual rate since April 2022. The fall to 7.0% means the annual rate has eased for the 10th consecutive month, from the recent peak of 19.2% in March 2023, which was the highest annual rate seen for over 45 years.

 

Monthly prices for food and non-alcoholic beverages fell by 0.4% between December 2023 and January 2024, compared with a rise of 0.6% a year ago. Monthly prices for food (excluding non-alcoholic beverages) also fell by 0.4%. This was the first fall in monthly prices since September 2021, and the largest fall since July 2021.

 

The easing in the annual rate for the division was driven by bread and cereals, where prices fell by 1.3% on the month, compared with a rise of 0.2% a year ago. The monthly fall was the largest since May 2021. The slowing in the annual rate was fairly widespread across the division. Of the 11 divisional classes, seven provided a downward contribution, while the others were unchanged.

 

The month’s fall in food inflation was well put into context by the ONS. It says that ‘although the annual inflation rate for food has been slowing, food prices are still high following relatively sharp rises over the latest two years. The overall price of food and non-alcoholic beverages rose by around 25% over the two years between January 2022 and January 2024. This compares with a rise of around 10% over the preceding 10 years.’

 

That comment underlines the problem the Government faces in conveying the point that food inflation is falling: the public memory of food prices in 2022 has not yet faded, so food prices still look – and are – much higher than they once were.

 

Six of the twelve broad CPI divisions saw annual inflation decrease, while three rose and three were unchanged. The category with highest annual inflation rate was alcoholic beverages and tobacco (3.8% of the Index) which recorded a 12.4% annual increase. Five divisions (Housing, water, electricity, gas and other fuels; Furniture, Household Equipment and Maintenance; Transport; Education; and Miscellaneous goods and services), accounting in total for 45.2% of the Index, posted an annual inflation rate below 5.0%.

 

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) was unchanged at 5.1%. Goods inflation in the UK fell 0.1% to 1.8%, while services inflation was up 0.1% at 6.5%.

Producer Price Inflation input prices fell by 3.3% in the 12 months to January 2024, against a revised fall of 2.8% in the year to December 2023. The corresponding output (factory gate) figures saw a 0.6% annual fall against a previous 0.1% rise. The ONS notes that ‘Input and output price levels have been relatively stable since mid-2022 but remain substantially higher than their 2021 levels.’  

 

Comment

 

The annual CPI figure of 4.0% is better than markets, the Bank of England (and the Treasury) were expecting. However, the Bank’s cautious approach will be reinforced by the rise in service inflation which comes on top of yesterday’s earnings data showing a 6.2% annual increase in earnings (excluding bonuses) and is ahead of April’s 9.8% rise in the national living wage.  

 

The consensus is that 2% CPI inflation should arrive with the April data, thanks to a projected 16% drop in the Ofgem energy price cap against no change in April 2023, when the EPG applied. Thereafter, the consensus is for inflation to edge up – the Bank’s expectation is for a year end figure of around 2.75%.

 

 

 

 

 

 

 

 

 

Help to Buy ISAs - quarterly statistics released

(FA5)

 

HMRC’s latest quarterly statistics on Help to Buys ISAs have been released. These cover the period from 1 December 2015 to 30 September 2023.

 

The statistics show that, since the launch of the Help to Buy ISA, 581,167 property completions have been supported by the scheme and 757,297 bonuses have been paid through the scheme (totalling £945 million) with an average bonus value of £1,247.

 

The table below shows the number of property completions supported by the scheme broken down by property value: 

 

The statistics also show:

 

• The mean value of a property purchased through the scheme is £177,752 compared to an average first-time buyer house price of £242,000 and a national average house price of £291,000;
• 65% of first-time buyers who have been supported by the scheme were between the ages of 25 to 34;
• The median age of a first-time buyer in the scheme is 28 compared to a national first-time buyer median age of 30;
• 73% of bonuses paid were in England and this supported approximately 72% of total property completions through the scheme.

 

The Help to Buy ISA scheme was launched on 1 December 2015. The scheme closed to new accounts on 30 November 2019, so it is no longer possible to open a new account. However, it is possible to continue saving until 30 November 2029 when accounts will close to additional contributions. The Government bonus must be claimed by 1 December 2030.

 

 

 

PENSIONS

 

HMRC lifetime allowance guidance newsletter – February 2024

(AF8, FA2, JO5, RO4, AF7)

 

As promised, HRMC are providing regular updates on the abolition of the lifetime allowance from 6 April 2024.  With only a short time until the start of the new tax year these updates are essential reading for both providers and advisers.

 

The latest February edition of the Lifetime Allowance newsletter is available here and has details on

 

• Frequently asked questions on
• lump sums and lump sum death benefits
• reporting requirements
• overseas transfer allowance
• protections and enhancement factors
• transitional arrangement
• Transitional tax-free amount certificates
• Reporting Requirements

 

As you would expect, the frequently asked questions cover many of the key points and all are worth reading by both scheme administrators and those who advise in this area. 

 

Transitional tax-fee amount certificates

The transitional tax-free amount certificates (TTFAC) have been a key area of uncertainty.   HMRC state that only those who have received less tax-free cash than under the standard calculation process should apply for a TTFAC. For example, someone who has taken defined benefit pensions under the lifetime allowance rules without the full tax-free cash entitlement.

 

The rules do not allow a TTFAC to be ignored if the calculation produces a worse outcome than under the standard process and so those advising clients should take care to ensure the certificate will be of benefit before the client makes an application.

 

To apply for a TTAFC the individual will require complete evidence of both the tax sums taken and the lifetime allowance used for all of their pre 6 April 2024 benefits. 

 

Further detailed guidance on applying for a TTFAC is available in the newsletter.

 

HRMC note that future pension schemes newsletters will contain further guidance on:

• the changes to enhanced protection
• the operation of lump sum and death benefit allowance enhancement factors
• the impact of stand-alone lump sums and lump sums taken under scheme-specific lump sum protection on an individual’s allowances
• the impact on allowances where individuals have a protected pension age of below 50 and take pension benefits before normal minimum pension age.

 

 

DWP: Low Earners and workplace pension saving – a qualitative study

(AF8, FA2, JO5, RO4)

 

The DWP has published a qualitative research report entitled: Low earners and workplace pension saving. The report was based upon analysis undertaken amongst 119 low earners, exploring their attitudes, behaviours and experiences of automatic enrolment and workplace pensions.

 

Some of the main findings were:

 

• Attitudes, behaviours, and experiences of low earners:

• saving into a workplace pension was generally considered desirable and important for future security.
• low earners exhibited diverse characteristics, including by age, single or dual household incomes, and level of financial vulnerability, confidence and trust in pensions. These factors, particularly age, had a greater influence on pension attitudes and the appeal of alternative pension scenarios than current earnings or pension participation.
• passive drivers of pension saving, such as lack of awareness of opt-in/opt-out rights, legacy enrolment, and auto-enrolment, were prevalent among participants.
• misconceptions from individuals that their benefit entitlement might be reduced or disappear if they started saving into a pension led some who were eligible to decide against doing so.

 

• Factors influencing opt-in decisions for earners below the trigger:

• social and material factors, including employers’ own approaches, workplace norms, and pension infrastructure, had a stronger influence on pension saving behaviour than individuals’ characteristics and attitudes.
• within the sample, active pension saving was more prevalent among those who prioritised saving in general or felt financially secure at a household level.

 

• Factors influencing opt-out decisions for earners above the trigger:

• reasons for opting out included a perceived need to prioritise short-term budgeting due to rising costs of living, or financial shocks and other life events.
• this decision was also observed among younger people in temporary roles with variable hours who felt more financially vulnerable, that pension saving was not yet relevant, or prioritised alternative investments. 

 

• Impact of proposed higher or lower contribution rates on low earners’ pension saving behaviour:

• participants generally had more negative or neutral views towards a higher earnings trigger compared to a lower one. There was a reluctance among all current pension savers to miss out on the opportunity to contribute to a pension.
• matched employer/employee pension contributions were more appealing and ‘fairer’ than higher employee contributions, especially among non-savers.

 

• Flexibilities within AE to encourage greater participation:

• lowering the trigger and offering flexibility to opt down or up contribution levels were likely to encourage participation due to passive pension behaviour.
• while initially appealing, a more flexible opt-up/opt-down/opt-out scheme was seen as potentially burdensome and confusing.

 

 

Small Pots Delivery Group launched

(AF8, FA2, JO5, RO4)

 

The DWP has issued a Press Release announcing that it has launched the Small Pots Delivery Group to address the issue of deferred small pension pots. The group will be chaired by the DWP and include representation from the Financial Conduct Authority, The Pensions Regulator and the Pension and Lifetime Savings Association as well as other industry bodies. According to DWP estimates, without intervention, the issue of small inactive pension pots could result in annual administrative costs of £225m by 2030. The DWP said the group will “provide recommendations on how best to implement the proposed multiple default consolidator approach” set out in the Government's consultation response in November 2023. Pensions Minister Paul Maynard said: “Deferred small pots are costly, inefficient, and hard to keep track of. This group will help in crafting a cost-effective and efficient system, ensuring better financial security and greater value for money for millions of savers.”

 

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The Underpensioned: Defining the Gender Pension Gap

(AF8, FA2, JO5, RO4)

 

The Pensions Policy Institute (PPI) has released a research report, sponsored by NOW: Pensions, entitled “The Underpensioned: Defining the Gender Pension Gap”. The report explores the impact of factors that contribute to inequality in retirement outcomes between men and women, in order to provide greater clarity on how to define the gender pension gap and support effective policy-making decisions to narrow the gap.

 

The report notes that the gap often results in women facing financial instability, forcing many to depend on family or state aid, which can lead to feelings of dependence and loss of autonomy, as well as the potential health impacts of poverty. It also shows that the gap significantly contributes to the rising rates of poverty among the elderly, with women being particularly susceptible.

 

Some of the findings include:

 

• Women’s pension assets less than two-thirds (62%) of men’s by their late 50s,
• To bridge the gender pension gap women would need to contribute for an additional 19 years or at a 6% higher rate than men,
• The report found that 67% of pensioners in poverty are women, and
• 50% of pensioners in poverty are single women.

 

The report states that this trend not only diminishes the quality of life for many women but also places additional strain on the social welfare systems and, therefore, addressing the gap is not just about individual financial stability but also about promoting social stability and easing pressures on social welfare systems.

 

 

Rowanmoor SSAS Scheme Determination

(AF8, FA2, JO5, RO4)

 

The Pensions Ombudsman has published its determination (PO-25984) in a complaint regarding the level of investment due diligence carried out in a Small Self-Administered Scheme (SSAS) set up with Rowanmoor Group Limited.

 

The complaint has not been upheld against Rowanmoor Executive Pensions Limited (a subsidiary of Rowanmoor), the SSAS administrator at the time of the events complained about, as it was not its responsibility to carry out the level of due diligence suggested by the complainant. However, the complaint has been upheld against Rowanmoor Trustees Limited (RTL) (another subsidiary of Rowanmoor), as it did not fulfil its duties as a trustee of the Scheme. Reflecting the shared responsibility with the member trustee, the Pensions Ombudsman has directed that RTL ensure that a sum equivalent to 80% of the Initial Loss Amount is returned to the scheme, as well as paying the complainant a sum of £1,000 to reflect the serious distress and inconvenience they have suffered as a result of RTL’s failure to discharge its duties as co-trustee in relation to the selection of investments.

 

Trustees (including professional trustees) have a responsibility for how scheme funds are invested, and need to ensure that they act in accordance with scheme rules as well as broader legislative requirements and common law duties of care. The Pensions Ombudsman has found that the investment in The Resort Group, who were developing a hotel in Dunas Beach, Cape Verde, was not appropriate and the lack of due diligence carried out by RTL caused a financial loss to the member.

 

The Pensions Ombudsman has seen a number of complaints from individuals who have transferred their pensions in order to invest in unregulated investments, such as fractional ownership schemes. In the most part, these have been made via transfers into SSAS’s where the member is the sole trustee and thus solely responsible for investment decisions. In this instance RTL was a joint trustee with the member, and for a period of time was the sole trustee of the scheme, charging the member for professional trustee services.

 

The Pensions Ombudsman is considering other complaints about due diligence in SSAS schemes provided by Rowanmoor and RTL and is looking at how these cases can be bought to resolution as quickly as possible. It should be noted that complaints could have different outcomes depending on how each scheme was set up and the investments they contained. Complaints are subject to standard jurisdiction requirements as set out in legislation.

 

 Complaints must be brought to the Ombudsman within three years of the event complained about, or within three years of when the complainant reasonably became aware of the issue.