Technical Tidbits – June 2020

Author Image Mark Devlin Technical Manager
8 minutes read
Last updated on 3rd Jun 2020

I’ve been given the task of summarising five important but not greatly reported changes in our financial world this month. So, I’ll keep the summaries brief with a view as to what these change in the planning sense.

In specie pension contributions

Recently at the Upper Tax Tribunal (UTT) a case between HMRC and SIPPCHOICE Ltd overturned the previous decision of the First Tier Tribunal (FTT) in relation to in specie pension contributions. The FTT had erred in law in determining what “contributions paid” in Finance Act 2004 (FA04) actually meant. Basically, the definition of “contributions paid” was called into question.

HMRC did have guidance that stated “contributions to a registered pension scheme must be a monetary amount. However, it is possible for a member to agree to pay a monetary contribution and then to settle this debt by way of a transfer of an asset or assets.”. However the UTT clearly stated that this carried little weight in this case (even though it turns out that the guidance was followed).. This is down to the fact that Statements in HMRC’s manuals are merely HMRC’s interpretation of the law in their internal guidance and they do not have the force of law.

So, in essence the law wins out and pension contributions must be in cash as per FA04. However as noted in the decision, there is an exception to the rule (as there always tends to be going by the common phrase) and that’s detailed in section 195 of FA04. You can contribute eligible shares within a company and still receive tax relief. This is as long as these are done within the permitted period.

In this instance eligible shares relate to Save As You Earn (SAYE) exercised options and Share Incentive Plan (SIP) shares which have been appropriated to the individual within the SIP provisions. The relevant period is defined as 90 days, for SAYE this is from exercising the option and for SIP this is 90 days following the transfer of ownership of the shares to the individual.

So, some in specie contributions can still take place.Those who have seen their in specie contributions tax relief removed may now have a gap in their retirement plans.

Off-Payroll Workers Amendments

Further to the delay to the new rules to April 2021 (which was announced during the initial phase of the Government provisions to the Covid-19 pandemic), the Government has published a new Clause 1 and new Schedule 1 regarding workers services provided through intermediaries. Basically, this applies to those outside the public sector to whom IR35 could apply to that are using umbrella companies.  

Long story short there is now an exemption for small clients and clients without a UK connection meaning the intermediary will have to assess if the IR35 rules (and therefore Income Tax and National Insurance) apply. 

Trustees registering trusts

On 19 May the Government issued guidance on when a trust should be registered online. Broadly speaking this is if the trust becomes (or is) liable to UK taxation.

There are differing rules on when the trust must be registered depending on both the type of tax it becomes liable to and if the trust has been liable to Income Tax or Capital Gains Tax previously.

The full detail is in the paper, but I find it’s always easier to detail when you don’t have to do something. In that spirit here’s when you don’t have the register so if the trust doesn’t meet these exemptions then registration will be required;

  • the trust has to pay Income Tax of less than £100 and this only came from interest
  • the trust is a bare trust
  • only the settlor or beneficiary of the trust has to pay tax
  • the trust is a charitable trust and you do not have to pay any tax on its income or assets
  • ·the assets in the trust go back to the settlor (a ‘resulting’ trust), for example, when the trust ends and all the beneficiaries have died
  • the trust has been created by legislation (a ‘statutory’ trust), for example, when a person dies without making a valid will and the estate passes to their relatives under the intestacy rules
  • the trust has been imposed by a court (a ‘constructive’ trust), for example, when someone has acted improperly or to hold compensation for a child aged under 18

If you have to report a trust for Foreign Account Tax Compliance Act (FATCA) or Common Reporting Standard purposes, you do not need a Unique Taxpayer Reference and you do not need to register the trust for that reason.

You do not need to register a trust if it holds a pension scheme that’s already registered with HMRC.

Making changes to the online trust register

Following on from the above, HMRC have updated their guidance as to when you have to update details on the online system. If the trust has been registered there are circumstances and there are changes to the;

  • lead trustee
  • other trustees
  • beneficiaries
  • settlor

then the trust register must be updated

You do not need to update the Trust Register with any other changes to the trust details.

If the changes happened before 6 April 2020 this must be updated by 31 January 2021, if the changes occur in this tax year these must be updated by 31 January 2022.

There will be further improvements to the system to follow, such as being able to inform HMRC that the trust has closed or making a change to the protector or other individual. But these are not there for now and you should make a note of the details.

On top of this you must declare annually on the Trust Register that the details of the persons associated with the trust are accurate and up to date. You must do this whether you have made any changes or not.

If the trust is liable to Income Tax or Capital Gains Tax, you’ll also need to confirm on the trust’s Self-Assessment return that you’ve either:

  • updated the details on the trust register
  • confirmed that there have been no changes to the trust

Changes to the Lifetime ISA exit charge

Again, as a measure to assist with the Covid-19 pandemic The Chancellor announced that the withdrawal charge from the Lifetime ISA (LISA) would be reduced from 25% to 20% the guidance on this has been updated.

There is no limit on how much can be withdrawn.

This easement of the rules will apply until 5 April 2021 and is effective from 6 March 2020. If an ISA manager applied the 25% charge from 6 March 2020 this can be rectified once the LISA digital service has been updated. The refund will be paid to the customers LISA if this is still open, or if the LISA was closed paid directly to them.

By reducing the penalty charge , all investors will lose (if they withdraw from their LISA outside the normal allowable charge free withdrawals)  is the government bonus to their original LISA subscription. They will not have the further 5% penalty applied.  Under the normal rules, if you pay £80 into a LISA, the government bonus would make this £100 and if you withdrew this and were liable to penalties (assuming no growth) £75 would be returned. Under this easement, LISA customers will now receive their £80 back for the rest of the tax year. 

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