tax tips & finance e-newsletter
In this issue
In this issue, we look at the new Worldwide Disclosure Facility, the changes in legislation which affect salary sacrifice schemes from 6 April 2016 and the benefit in kind regulations on pension advice.
‘Your money’ reviews the new Lifetime ISAs being launched on 6 April 2017. Finally in our ‘Retirement planning, wills and inheritance tax’ section we take a quick look at the new deemed domicile rules and changes in the retirement household income.
Worldwide Disclosure Facility
HMRC recently announced the start of the Worldwide Disclosure Facility (WDF) that will run until 30 September 2018.
The WDF can be used by individuals wishing to disclose a previously undeclared UK tax liability that relates wholly or partly to an offshore issue, for example:
- income arising from a source in a territory outside the UK;
- assets situated or held in a territory outside the UK; or
- activities carried on wholly or mainly in a territory outside the UK
After the closure of the WDF on 30 September 2018, HMRC will be using information acquired from over 100 countries under the Common Reporting Standard (CRS) to identify individuals with offshore income and gains. HMRC have warned that they will be taking a much firmer position from this date and individuals who have failed to correct their tax affairs under the WDF could face severe penalties. All other HMRC offshore disclosure facilities have now been closed and the WDF is the 'final chance' to come forward.
If you would like to further information or would like assistance in making a WDF disclosure, please contact Kevin Hancock.
Salary Sacrifice Schemes
End of the road for salary sacrifice
Under a salary sacrifice arrangement, the employee gives up an amount of cash salary in return for a benefit in kind. Where the benefit is exempt from tax and National Insurance, the employee saves the tax and primary Class 1 National Insurance that would otherwise be payable on the cash salary and the employer saves the associated secondary Class 1 National Insurance.
The ability to use salary sacrifice arrangements to take advantage of tax exemptions for benefits in kind is seriously curtailed from 6 April 2017. From that date, unless the benefit is one of a limited range of benefits unaffected by the changes, where a benefit is provided under a salary sacrifice arrangement or where a cash alternative to the benefit is offered, any associated tax and National Insurance exemption is lost. Instead, the employee will be taxed on the cash forgone or the amount of the cash alternative where this is higher than the cash equivalent of the benefit.
Certain benefits are unaffected by the changes – pension provision and advice, childcare, ultra-low emission cars and the provision of cycles and cyclists’ safety equipment – and employees can continue to enjoy the associated tax exemptions where these benefits are made available under a salary sacrifice arrangement or where a cash alternative is offered instead.
Existing arrangements in place on 5 April 2017 are protected for one year until 5 April 2018. Where the arrangement relates to the provision of a car with CO2 emissions of 76g/km and above, living accommodation or school fees, the arrangement is protected for a further three years until 5 April 2021.
New exemption for pension advice
From 6 April 2017 employers will be able to provide employees with pension advice costing up to £500 a year without triggering a taxable benefit. The new exemption will cover not only advice on pensions, but will also extend to advice on general financial and tax issues relating to pensions. The exemption will replace the current exemption, capped at £150 a year, available solely for pension advice.
The Lifetime ISA will launch in April 2017. A Lifetime ISA can be opened by anyone between the ages of 18 and 40. Savings of up to £4,000 a year made before the individual’s 50th birthday will earn a Government bonus of 25% - a potential bonus of up to £1,000 a year. There is no minimum contribution.
The Lifetime ISA can only be used to save for a deposit for a first home or to save for retirement. Where the savings are used as a deposit on a home, the bonus is only payable as long as the home does not cost more than £450,000. If the ISA is used to save for retirement, the savings and the Government bonus can be withdrawn tax-free once the individual reaches his or her 60th birthday. If the savings are withdrawn for any other purposes, the Government bonus is lost and a 5% charge is also payable.
Retirement Planning, Wills & Inheritance Tax
From 6 April 2017 anyone who has been resident in the UK for 15 of the previous 20 tax years will be deemed to have a UK domicile where they do not already have one. This will apply for all tax purposes and will replace the current deemed domicile rule for inheritance tax purposes whereby an individual is deemed to be domiciled in the UK where he or she has been UK-resident for 17 of the previous 20 tax years.
The introduction of the deemed domicile will mean that the option to be taxed on the remittance basis on payment of the remittance basis charge will from 6 April 2017 no longer be available to those who have been resident in the UK for tax purposes for 15 of the last 20 tax years. The remittance basis is only available to those who are not UK domiciled or who are not deemed to be so domiciled. Consequently, the higher rate of the remittance basis charge (£90,000 for those resident in at least 17 of the previous 20 tax years) will cease to apply from 6 April 2017.
Anyone caught by the new rule will need to review their residence position.
Retired household income up 13% since 2008
Median income for retired households rose by 3.1% between 2014/15 and 2015/16, according to the Office for National Statistics (ONS).
The latest disposable income and inequality statistics show that median income for retired households at the end of 2015/16 was £21,800. This is an increase of 13% (around £2,500) from 2007/08. The median income for non-retired people decreased by 1.2% (around £300) in the same period.
Steven Cameron, pensions director at Aegon UK, said: “While the figures suggest there has never been a better time financially to be retired, today’s pensioner households are benefitting from 2 big factors. Firstly, many are receiving an income from generous defined benefit schemes. “Secondly, pensioner benefits have been largely protected by recent government policy and the triple lock state pension in particular has come into focus for the high cost of providing such a generous uplift.”
Composition of retired household income
The state pension was the second largest source of income for retired households in 2015/16.
The overall proportion of retired household income coming from cash benefits including the state pension has fallen from 64.7% in 1977 to the current level of 45.9%. There has been a growth in the percentage of retired households receiving income from private pensions, up from 44.5% in 1977 to 78.8% in 2015/16.
Average income received from private pensions in 1977 was £1,600 (18% of gross income). This has increased to £11,000, or 43.8% of gross income, in 2015/16.