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My PFS - Technical news - 15/08/17

Personal Finance Society news update from 2nd to 15th August 2017.

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Taxation and Trusts

Investment planning


HMRC tax receipts hit a record

(AF1, AF2, JO3, RO3)

HMRC's annual report and accounts for 2016/17 reveal that HMRC collected £566.8 billion in taxes in 2016/17, which is £33.1 billion more than in 2015/16.

These latest figures show that this is the seventh successive year in which HMRC has brought in record tax revenues.

It would appear that 9.6 million taxpayers submitted their self-assessment returns online by 31 January with 1.7 million filing through their personal tax account - and over time with making tax digital we should see a further increase in these numbers.

In addition, according to HMRC's Annual Report and Accounts 2016/17, HMRC handled 91.7% of all customer calls during the last financial year - despite setting itself a target of just 85% the previous year.

Edward Troup, executive chair and permanent secretary at HMRC, said:

"Our ability to collect the money required to fund the UK's public services is, of course, the ultimate yardstick by which we will be measured, but the public rightly judge us on the quality of service we provide to the overwhelming majority of people in the UK who are honest and pay the right amount of tax on time.

Our continued focus on giving our customers the service level they deserve is paying dividends.

There are now quick and simple online tools to allow people to deal with their taxes or tax credits anywhere, anytime and the best phone service in years for those wanting to call us."

£4bn collected from accelerated payment notices

(AF1, RO3)

HMRC has collected more than £4billion through accelerated payment notices (APNs).

As a reminder, APNs enable tax avoidance scheme users to pay disputed tax 90 days before HMRC challenges the individual's scheme in Court.

Accelerated payment notices were introduced in 2014 and, to date, more than 75,000 notices have been issued to people under enquiry for using alleged tax avoidance schemes. HMRC has issued notices on all schemes that were already under investigation at that stage.

It would appear that the average bill for large companies is £6 million while for individuals and small corporates it is £74,000.

The right of beneficiaries to see trust documents

(AF1, JO2, RO3)

In a recent case, the beneficiaries of an offshore trust used the Data Protection Act to obtain access to trust documents. The Court of Appeal ruled that the legal professional privilege exemption in England applied only to documents that would be subject to legal professional privilege as a matter of English law, regardless of the law governing the trust.

The case was Dawson-Damer & Ors v Taylor Wessing LLP[2017] EWCA Civ 4.

The case was brought by beneficiaries of certain offshore trusts established in the Bahamas. The defendant, Taylor Wessing LLP (TW), is a well-known firm of solicitors which advised the trustee of the trusts.

The beneficiaries first attempted to obtain certain documents from the trustee in theBahamasbut were not successful. They then made a "subject access request" (SAR), under the Data Protection Act 1998 (DPA), to TW.

Under the DPA, a data subject (here the beneficiaries) has a right to be informed where personal data (of which he or she is the data subject) is being processed by a data controller (here TW). The data subject is then entitled to certain further information and copies of the data. TW's initial response to the request was that the information requested was subject to legal professional privilege and therefore exempt from disclosure under the DPA.

The beneficiaries applied for a Court order that TW had failed to comply with the SAR but, in 2015,  the High Court agreed with TW's position that (in summary) the legal professional privilege exemption relied on by the firm applied where the documents were not disclosable as between trustees and beneficiaries as a matter of Bahamian law.  There were some other technical points relating to whether the purpose of making the SAR was proper or not.

The Court of Appeal decided that the legal professional privilege exemption applied only to documents that would be subject to legal professional privilege as a matter of English law. This means that a data controller in the UK cannot therefore rely on more restrictive foreign rules regarding privilege to avoid complying with a SAR. As such, TW, relying on the fact that it considered the information was covered by the legal professional privilege exemption, had failed to satisfy the Court that complying with the SAR would involve disproportionate effort on its part. Furthermore, there was no limitation in the DPA on the purposes for which a SAR might be made and no rule that a data controller could refuse to comply on the grounds of the requester's 'true motive'.

This case may be seen as a way around the established limitations on the ability of a beneficiary to compel the production of trust documents from a trustee as of right. Obviously this will only be relevant where the trustees or their advisers are in the UK. The law on what information a beneficiary is entitled to see is rather complex, the most recent case on this being RNLI and others v Headley and McCole (2016).

Top-slicing relief

(AF1, AF2, JO3, RO3)

A query was recently raised with us which required clarification of the top-slicing relief position on non-UK life policies, with particular reference to excesses.

An excess arises under a non-qualifying life policy, such as a single premium bond, when withdrawals in a policy year exceed the cumulative unused 5% allowances for that year.

Top-slicing relief involves dividing the resulting chargeable event gain (CEG) by the number of complete years the policy has run before the CEG arises.  The resulting fractional gain is used to determine whether the CEG is subject to higher and/or additional rate income tax - see here.

Under non-UK policies, for all CEGs occurring before 6 April 2013, the number of complete years for top-slicing relief could be counted from inception to the date of the CEG.  With an excess the CEG is treated as arising on the last day of the policy year.

This position changed for non-UK policies issued on or after 6 April 2013, and for non-UK policies issued before 6 April 2013 which are varied, assigned or used as security (see details below) on or after that date.  For the first excess arising, the number of complete years for top-slicing relief is still measured from inception to the date of the CEG.  However, for second and subsequent excesses, only the number of complete years since the last excess are used.  This mirrors the position that has always applied for UK (onshore) policies. 

Under paragraph 7(2) Schedule 8 Finance Act 2013, a non-UK policy issued before 6 April 2013 will be treated for top-slicing relief purposes as if it was issued on or after 6 April 2013 where:

(a) it is varied so as to increase the benefits payable (which includes being varied by exercise of an option conferred in the policy); or
(b) there has been an assignment, by way of gift or for consideration, of the whole or part of the rights under the policy to the individual liable for the tax on the excess, or the deceased in cases where personal representatives or trustees are liable for tax on a gain which had arisen to the deceased.  Assignment here includes an assignment into or out of trust; or
(c) the whole or part of the rights under the policy become held as security for a debt of the individual or the deceased (see (b) above).

In respect of other chargeable events, such as death giving rise to the payment of benefits and full surrenders, the number of complete years for top-slicing relief purposes is always counted from inception to the date of the chargeable event for all non-UK policies.

European corporate tax reform

(AF2, JO3)

Corporate tax reform appears to be strongly on the legislative agenda in the EU.

The recent inability of the French government to prove that Google's transactions (doing business in France) amounted to them having a permanent establishment there is a major setback for the (relatively) new government.

If successful (and an appeal is understood to be being lodged) France could have claimed £1.1bn in back tax.  Now it looks like a (UK-like) discussion on a "voluntary" contribution from Google (remember Starbucks?) is likely to be necessary.

Quite clearly, the ability to move multinationals' profits between jurisdictions constitutes a "tax revenue sapping" problem.  The general view of nations is that, in principle, economic activity should be taxed where it takes place.  Technology companies do not fit neatly into such a system though.  It seems that the scale of the sales Google declares in France is clearly not commensurate with the scale of its activities there.  This inevitably causes public disquiet - to put it mildly.  The OECD estimates that some $100bn-$240bn of revenues are lost each year due to the gaps in international rules that allow corporate profits to be artificially shifted to tax havens.  And the rapid growth of the digital economy is a big contributor to this.

Under the old rules of "establishment" countries are finding it difficult to levy the tax they believe is truly due.  The UK has brought in the diverted profits tax on profits it believes to have been artificially diverted.  India has also introduced its own "equalisation levy".

It is accepted, though, that a truly effective solution depends on concerted international action.  Last month 70 countries committed to sign a new pact tackling tax avoidance, which should in theory resolve some of the thorniest issues. But key countries, such as Ireland and Luxembourg, have not yet signed up to all of its provisions and there are plenty of outstanding issues.  Nor has the US signed the accord.  This may not be a big problem, but the US approach of taxing worldwide income gives Washington little reason to help other countries increase their tax take from US companies it believes to be unfairly targeted.

And the EU has been active.  For example, the European Commission last year invoked State aid rules to strike at Apple's tax arrangements in Ireland.  Unusual, as tax policy has largely been a matter for the tax authorities of the countries involved - not the EU.


Indexation allowance and the retail prices index tables

(AF4, FA7, LP2, RO2)

We remarked back in March that the Office for National Statistics (ONS) had revamped its monthly inflation release to place primary emphasis on CPIH, rather than the more widely used CPI. CPIH is the Consumer Prices Index including Owner Occupiers' Housing Costs. As such it is a variant of the CPI which includes a measure of the costs associated with owning, maintaining and living in one's own home, along with Council Tax. Both factors are absent from the CPI, but that Index does include "actual housing rental costs" with a 7.1% weighting. However, at the time CPIH was under a cloud.  In September 2016 the UK Statistics Authority (UKSA) had reviewed CPIH and deemed it not to be an official National Statistic.

At the end of July, after a further review, the UKSA has decided to designate CPIH as a National Statistic. Unsurprisingly, the ONS has welcomed the UKSA's change of heart, which comes after the ONS had responded to the UKSA's earlier criticisms. The formal nod now given to CPIH raises two interesting questions:

  • Will it replace CPI? CPI started life as the Harmonised Index of Consumer Prices (HICP), an EU standardised measure of inflation. It first gained attention in the UK when it became the yardstick for the Bank of England's inflation target in January 2004, replacing RPIX (RPI less mortgage costs). It then received a further boost when George Osborne switched a variety of indexation measures, including public sector pensions and income tax allowances, from RPI to CPI. The move was a money saving measure, as RPI has historically outpaced CPI (eg by 0.5% pa over the last ten years, a period distorted by falls in mortgage rates, and 0.8% pa over the last five years). The March Budget assumption by the OBR was that RPI would be running at 1.2% pa above CPI by 2022.


    The ONS says that CPIH "offers the most comprehensive picture of how prices are changing in the economy", which suggests it could replace CPI. The government may be tempted to make the change, given that CPIH has marginally underperformed CPI over the long term by 0.1% pa over ten years Over five years both register an average of 1.6%.
  • What happens to RPI? RPI is not a National Statistic and even the ONS says "RPI is not a good measure of inflation and we discourage its use". However, the RPI has a long track record and is still used for indexation purposes by the government where its higher-than-CPI effect is revenue-enhancing, eg in setting student loan interest rates, excise duty and rail fare increases. The RPI is also the indexation basis for a little over £400bn of index-linked gilts.


    In a recent article, the economics editor of the Financial Times, Chris Giles, was bitterly critical of the continued use of the RPI and called for its replacement with the CPI. He pointed out that for 94% of index-linked gilt holders, the original gilt prospectuses allowed the government to use a replacement inflation index if RPI were abolished. For the other 6% - just three issues - the government would have to offer holders the option of redemption at their indexed par values, which would be less than current market values.


    If you were the cash-strapped Chancellor, shaving that OBR differential of 1.2% a year from over £400bn of debt could have a certain appeal…


    A move to CPIH will be a point to watch for in the Autumn Budget.

After last week…

(AF4, FA7, LP2, RO2)

The Donald and Kim Show gave the equity markets something to shake their Summer complacency last week. However, look beyond the nuclear sabre rattling and most equity investors should still be showing gains over the year to date. 



Week to 11/8/2017


Year to Date

FTSE 100



FTSE 250



FTSE All-Share



S&P 500



Euro Stoxx 50 (€)



Nikkei 225



Shanghai Composite



Kospi (South Korea)



MSCI Emerg Markets (£)












Brent Crude ($)



Gold ($)



Iron Ore ($)



Copper ($)



A few points to note are:

  • The South Korean market, as measured by the Kospi, suffered over the past week, as might be expected. Nevertheless, it is still one of the strongest performers of 2017. The performance of Samsung, which accounts for over a quarter of the index, has helped. Emerging markets generally (a classification in which MSCI still includes South Korea) have enjoyed a strong 2017.
  • Sterling had a particularly bad week against the Yen, which is for now regarded as one of the 'safe haven' currencies (despite its relative proximity to North Korea). 
  • Over 2017 sterling has been declining sharply against the euro, but appreciated against the US dollar. That may go some way to explaining why the FTSE 100 has underperformed the more domestically-oriented FTSE 250.
  • Last Thursday the likes of Shell, BP and Rio Tinto went xd. According to the FT, 41 of the 108 points fall in the Footsie on that day was due to major constituents going xd.
  • The US market had been particularly quiet prior to the Korean shouting match, so was arguably ready for a shakeout.  A little over a fortnight ago the Vix, Wall Street's "fear gauge", hit a record intraday low, while the S&P 500 had enjoyed a record breaking 15 consecutive day run of movements below 0.3%.
  • Bonds yields generally dropped over the week, with the 10 year German government Bond now yielding 0.38% (against 0.11% at the start of the year). The corresponding figures for UK gilts are 1.11% and 1.24% and for US T Bonds 2.19% and 2.46%.

August is often a month of thin trading volumes, which can mean market movements are exaggerated. 

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