DECLARATION WAIVED FOR AGENTS’ ONLINE IHT RETURNS
Practitioners who submit an online inheritance tax return on behalf of a client no longer need to provide a declaration that the information is correct and complete to the best of their knowledge and belief.
In September, HMRC launched an online filing service for inheritance tax (IHT) returns. Regulations setting out the process for submitting returns online contained a requirement that any person (such as an agent) delivering an account on behalf of another person ‘completes a declaration to confirm that the information is correct and complete to the best of the knowledge and belief of the person delivering it…’.
Regulations issued by HMRC last week have now removed the requirement on agents to provide this undertaking following concerns that the wording of the undertaking could deter many agents from using the service. Agents must, however, still confirm that they have obtained approval from the person on whose behalf the submission is being made and that the information is correct and complete to the best of the knowledge and belief of that person.
The revisions made to the agents’ undertaking means that IHT online now mirrors self-assessment and annual tax on enveloped dwellings (ATED) in that an agent submitting information on behalf of another person now just has to confirm that they have had confirmation from the person whose information is being sent that the form is correct and complete.
UNEQUAL DISTRIBUTION OF EQUITY ON REMORTGAGE INFERS INTENTION TO VARY BENEFICIAL OWNERSHIP
A cohabiting couple who bought a house as joint tenants with equal shares has ended up with one party owning 85 per cent of the equity, although no express declaration to vary beneficial ownership was ever made.
Ordinarily, where a property is jointly owned and there is no express declaration of trust setting out terms to the contrary, the equity in the property is deemed to be owned in equal shares. However, in Barnes v Phillips  EWCA Civ 1056, the Court of Appeal has decided that unequal cash distributions made to the two parties on re-mortgage of the property demonstrated a change to the original intention to hold the property in equal shares even though no express declaration to vary beneficial ownership was ever made.
The case concerned a cohabiting couple – Mr Barnes and Ms Phillips – who had been together since 1983 and had two children together. In 1996 the couple purchased a property as joint tenants for the sum of £135,000. Some years later, when the property had increased in value to £350,000, the couple remortgaged and used £66,069 of the funds raised to pay off business debts that had accrued to Mr Barnes while the balance was used to redeem the original mortgage.
Shortly thereafter, the parties’ relationship broke down and it fell to the Court to determine the parties’ respective interests in the property. On the basis that one party (Mr Barnes) had received the sole benefit of 25% of the equity in the property when the property was re-mortgaged, the Court of Appeal held that there was to be inferred a common intention at that point to vary their interests in the property. Taking into account the extent of each party’s contribution towards the children (including sums outstanding due from Mr Barnes to the CSA), repairs to the property and mortgage repayments since the breakdown of the relationship; the Court of Appeal upheld the conclusion of the first instance judge that a fair division was 85/15 in Mrs Phillips’ favour.
This decision represents a shift away from previous precedent which suggested that where property is owned as joint tenants, a common intention to depart from a 50/50 division could only be established in the most unusual of circumstances.
ATTORNEY’S EXPENSE CLAIM ‘EXCESSIVE’ AND ‘REPUGNANT’
The Court of Protection has revoked a power of attorney used by a management consultant, after it heard he charged his mother’s estate more than £117,000 for out-of-pocket expenses incurred on visits to her nursing home.
An attorney who charged his elderly widowed mother ‘out of pocket expenses’ amounting to more than £117,000 for visiting her in her nursing home and acting as her attorney, has (unsurprisingly!) had his appointment revoked by the Court of Protection in Re SF,  EWCOP 68.
The Court heard that the attorney used his usual daily charging rate from when he was a self-employed independent consultant prior to his retirement to clock up the astronomical bill.
The Public Guardian launched an enquiry after the local authority raised concerns about the attorney’s conduct when an ongoing dispute with the NHS over who should be responsible for the care fees led to unpaid nursing bills of nearly £30,000. The Public Guardian agreed with the local authority that it was in the best interests of the donor for her fees to be paid pending the outcome of the dispute and launched the enquiry which ultimately led to an application for the court to revoke the Enduring Power of Attorney (‘EPA’) when the extent of the attorney’s abuse of power was discovered.
In issuing an order to revoke the power the judge commented that ‘one would be hard pressed to find a more callous and calculating attorney, who has so flagrantly abused his position of trust’. Senior Judge Lush added that ‘charging one’s elderly mother a daily rate of £400 for visiting and acting as her attorney is repugnant’.
Despite the fact that an attorney may be the sole beneficiary of the donor’s estate, an attorney’s fiduciary duty means that attorneys must never take advantage of their position or put themselves in a position where their personal interests conflict with their duties. Further, attorneys must not profit or get any personal benefit from their position, apart from receiving gifts where the Act allows it, whether or not it is at the donor’s expense.
HMRC WINS RANGERS EMPLOYEE BENEFIT TRUST APPEAL
Scotland’s Court of Session has ruled in favour of HMRC in the case of Glasgow Rangers football club, despite two earlier Tribunal defeats.
Scotland’s Inner Court of Session has ruled in favour of HMRC in its long-running battle with the Murray group and the former Glasgow Rangers football club, despite two earlier Tribunal defeats.
HMRC forced the club’s original owners, Murray Group Holdings, into liquidation in 2012 after raising assessments to income tax and National Insurance on the basis that payments totalling £47.65m made to players and staff from the employee benefits trusts (EBTs) between 2001 and 2010 constituted disguised remuneration.
The club argued that the payments were genuine discretionary loans that could be recovered rather than actual earnings and were not therefore subject to tax on the employees; and in 2012 the First-tier Tax Tribunal found in the club’s favour.
HMRC then took the case to the Upper Tax Tribunal where, in 2014, Rangers won again. Initially HMRC was refused leave to appeal this decision, but later obtained leave to refer it to Scotland’s Inner Court of Session.
The Court (in Advocate General for Scotland v Murray Group Holdings) has now accepted HMRC’s argument that the cash payments made by the employer to the EBTs were in consideration of earned services by the employees and found that both earlier Tribunal decisions were wrong in law.
It considered the fact that some of the employees had been given a secret ‘side letter’ separate from the employment contract implied that the EBT formed part of their remuneration package, and ultimately found that the scheme amounted to ‘a mere redirection of employment income’.
The decision (which may yet be appealed to the Supreme Court) supports HMRC’s long-standing position on the effectiveness of EBTs and may well be used as a basis for serving an accelerated payment notice on any company which has yet to settle.
THE COST OF PENSIONS TAX RELIEF
The House of Commons Library has published a briefing paper entitled ‘Restricting Pension Tax Relief’.
Although a response to the July Budget consultation on savings incentives has been deferred until March, the delay has not stopped the House of Commons Library issuing a 50-page paper on tax relief and pensions.
The paper is a helpful resume of the various opinions that have been expressed about potential changes to tax relief from the usual suspects, including all the main political parties, the Institute for Fiscal Studies, the Pension Policy Institute and Michael Johnson at the Centre for Policy Studies. The paper also looks at the various cut backs to relief since the arrival of the ‘simplified’ regime in 2006 with a lifetime allowance of £1.5m and an annual allowance of £215,000.
The paper sets out how the Treasury arrives at its “near £50bn” gross cost of pension reliefs in 2013/14 referred to in the July consultation document:
Income tax relief on:
Contributions from employees 6.2
Contributions from employers 20.2
Contributions from self-employed 0.6
Investment income of pension funds 7.3
National Insurance relief on:
Employer contributions 14.0
TOTAL RELIEFS 48.3
Against this can be set the tax received on private pensions, which in 2013/14 amounted to £13.1bn, leading to a net cost of £35.2bn. However, the Treasury argues that such an offset could be misleading given that the tax “received by the government from pensions in payment will in all likelihood come from pensions which received tax relief many years ago.” The Treasury also reasonably states that “tax rates of individuals may change over their lifetime and therefore the rate of relief they may not correspond to the amount of tax they ultimately pay on their pension.”
While the paper refers to recent data on the net cost of tax relief, it does not reproduce HMRC’s own chart (see page 15) which shows the net cost declining steadily from £38.1bn in 2010/11 and the cost of income tax relief also heading down from the same date, as annual allowance cuts took effect.
One issue which is quietly coming to the fore in the context of the cost of pension tax relief is the impact of auto-enrolment. Earlier this month, the chairman of the Association of Consulting Actuaries (ACA) warned a conference organised by the Westminster Employment Forum that the combination of rising auto-enrolment numbers and the implementation of the national living wage would put “a real strain on Treasury finances”. And that without considering the ACA’s suggestion that the auto-enrolment rate should be increased from the 2018 8% ceiling to 16%, going up by 1% every two years.
PENSION POLICY INSTITUTE LOOKS BEYOND 2017
In April 2017 the ban on transfers into NEST and the contribution limit (£4,700 in 2015/16) will be removed. 18 months’ later auto-enrolment will reach its final 8% contribution level. A review point for auto-enrolment is scheduled for 2017 – five years on from its birth – and in preparation the TUC commissioned the Pensions Policy Institute (PPI) to examine future contribution levels and increase mechanisms, with their resultant effects on benefits.
The PPI paper examines different scenarios applied to four TUC-set individual profiles (low and median earnings) and does not make any specific recommendations. Nevertheless, there are some interesting points that emerge:
• The current 8% of earnings band system (£5,824 to £42,385 in 2015/16) equates to 6.3% for the median earner and 3.3% at the £10,000 income trigger level. The PPI notes that “These levels are lower than the contribution level required to achieve a good chance of an adequate level of retirement income.”
• The PPI considers four triggers to increase contributions:
o age, with contributions increasing as the worker becomes older;
o job tenure, with contributions increasing with length of service;
o pay increase, with part of any increase diverted to raise the contribution level; and
o pay level, under which the PPI suggests the contribution rate is linked to individual earnings and these are compared to National Average Earnings in setting the contribution rate.
o The PPI notes that job churn will impact on 2, while low earners will still see low contributions under 4.
• The current system of 8% contributions of banded earnings has a tax relief cost of £3.3bn per year. The PPI puts the cost of tax relief at £0.4bn for each additional 1% of contribution, implying a 10% contribution would cost £4.1bn in tax relief. Two thirds of the current tax relief cost on automatic enrolment contributions is spent upon basic rate taxpayers.
• The issue of low pay/low contribution prompted the PPI to examine a flat rate annual bonus of £500 added to all contributions, paid for by the Government at a cost to the Exchequer of £4.5bn a year. The total cost of tax relief plus the bonus approximately equates to the tax relief cost upon a contribution level of 19% of band earnings, according to the PPI. 88% of the bonus cost an 80% of total cost (including tax relief) would go to basic rate taxpayers. Not unreasonably, the PPI suggest that a £500 incentive “may reduce opt-out rates increasing costs further”.
What comes next after 8% may seem a long way off, but it is one of the factors which must be weighing on the Treasury’s mind as it contemplates pension tax relief reform.
OMBUDSMAN RULES ON TWO GAR CASES
The Pensions Ombudsman has published two determinations in respect of individuals with a guaranteed annuity rate attaching to their occupational pension benefits in the same scheme.
The (PO) has recently ruled on two cases involving the same occupational pension scheme; Paine Webber (UK) Pension Plan. Both of these relate to the guaranteed annuity rate (GAR) offered by Abbey Life. The two cases were:
• PO-563 in respect of the transfer out for a Mr Sayer, and the other
• PO-569 in respect of taking benefits under the scheme by a Mrs Godfrey.
In the first case, the PO ruled that the complaint should not be upheld because:
• the respondents were not advising the applicant about a transfer out of the Plan; and
• there was no mandatory obligation to disclose information regarding GARs on transfer.
The case was about whether when Mr Sayer decided to transfer his benefits away from the OPS the Abbey Life or Towers Watson should have advised the client and his financial adviser of the fact the plan contained a GAR.
The PO decided that as neither the individual nor his financial adviser has specifically asked either Abbey Life or Towers Watson about the existence of any GARs, they had no duty to provide the member with that information.
However, in the second case, The PO ruled that the complaint should be upheld because:
• Abbey Life failed to provide a pre-retirement option letter and subsequent retirement illustration for Mrs Godfrey in accordance with its usual procedures, which it had done for other members of the Plan;
• Towers Watson failed to make proper enquiries as to the benefits provided by the Policy held by the Trustee for Mrs Godfrey’s benefit, despite information hinting that a GAR may be applicable. Further, Towers Watson also failed to compare the benefits provided by the existing incumbent insurer under the Policy with benefits provided by other insurers on the open market.
Mrs Godfrey, claimed that she contributed for two years to a pension scheme from 1978, at that time run by Paine Webber International (UK). She retired in 2004 but says she was not given a retirement pack notifying her of the GAR. She instead bought an annuity on the open market which resulted in an annual income of £1,938.24 which was £871.58 less than she would have received with the GAR.
The Pensions Ombudsman, Anthony Arter, ordered that Abbey Life and the scheme administrator Towers Watson pay Godfrey £7,603, the amount of income she would have accrued over 11 years, plus interest.
Mr Arter went on to say: “Had Abbey Life quoted the retirement benefits that the trustee could have secured under the policy at the time of Mrs Godfrey’s normal retirement date, or told Towers Watson of the GAR when quoting retirement figures, I am satisfied that Mrs Godfrey and Towers Watson would have elected for Abbey Life to provide Mrs Godfrey’s pension.”
It will be interesting if Mr Sayer decides to look into why his adviser did not think to specifically enquire as to the existence of GARs within the OPS.