01 FEB 2025

Technical Newsletter - February 2025

Issue 8 - February 2025

 

Inheritance Tax and pensions

A hot topic recently has been the announcement in the UK budget on 30 October 2024 that from 6 April 2027 most pensions will be added to the estate of someone who has passed and therefore be potentially in scope for Inheritance Tax (IHT) for the first time. The Government carried out a consultation following the budget, which ended on 22 January 2025.

It's fair to say that the industry raised a raft of practical concerns with the proposals. In their latest newsletter, published on that day, HMRC confirmed that they are now reviewing the issues and views expressed in the responses and will publish both a formal response and draft legislation later this year.

The question really is whether the Government will backtrack and water down its proposals in any way, given that its budget has largely been poorly received across the financial services sector. There certainly remain plenty of unanswered questions, for example, how can pension administrators hope to collate all the information required on someone’s estate and make a distribution within the six-month deadline currently in place for the payment of IHT, following someone’s death, as well as whether beneficiaries may face onerous double tax burdens on inherited pots where IHT and income taxes would both apply.

The bottom line at present is that significant uncertainty remains about this proposed change, and input from financial advisers will be valuable in ensuring that clients don’t make irreversible changes prior to clear guidelines being in place.

What has muddied the waters somewhat has been the announcement of changes to the non-dom regime which could bring increased numbers of ex-pats into the UK IHT regime.

Perhaps an indication that changes to the plans may follow is given by the following article.

 

Government planning revisions to recently announced non-dom rule changes?

Also announced in the last budget were changes to the non-dom regime, something that was expected, because the previous Conservative administration had already made plans for reforming the current process. The changes announced by the new Labour Government went beyond those already on the table, with the result that numbers of wealthy non-doms have already made their exit from the UK.

It is worth summarising the changes which involve the introduction of a new long-term resident test. The remittance basis used for non-doms residing in the UK is being abolished and a new term will exist, the “qualifying new resident” or QNR. This will be someone who is a new UK resident but was previously non-UK resident for at least 10 consecutive years up to April 2025. Qualifying new residents will be liable for IHT anywhere in the world.

Under the temporary repatriation facility, an individual who previously claimed the remittance basis and has unremitted gains, will be able to remit historic gains during 2025/26 and 2026/27 at a reduced flat rate of 12% for the first two years and 15% during 2027/28 which is the final year.

In addition, the new regime will provide 100% relief on foreign income and gains for new arrivals to the UK in their first 4 years of tax residence, provided they have not been UK tax resident in any of the 10 consecutive years prior to their arrival (the 4 year foreign income and gains regime).

Reports surfaced in the media on 24 January that the chancellor is planning on amending the plans to abolish non-dom status to allow a more generous phase out of tax benefits. She told an audience at the World Economic Forum in Davos that changes would be made to upcoming legislation to increase the generosity of a facility to help non-doms repatriate their funds to the UK.

The issue of the level of tax paid by wealthy individuals who have not declared the UK as their permanent home, has always been an emotive one and a tricky area for a Government to steer a sensible course. Come down too hard and wealthy, mobile individuals will simply relocate. With reports in the media suggesting that the value of lost revenues attached to individuals who have already left the UK since the budget amounting to the equivalent of half a million normal taxpayers, it is perhaps not surprising that the chancellor is having second thoughts.

We will of course follow this area of keen interest for our internationally based advisers and their members.

 

A piece of positive news for some! HMRC tax code changes

Also included in the latest HMRC Newsletter was an announcement that from April 2025, HMRC are improving how tax code information is used for those people who are new to receiving a private pension, but who already have an existing tax code in place. 

They will automatically update the tax code for customers who are put on a temporary tax code by the pension provider processing the first income withdrawal, and who would benefit from being on a cumulative code. This means that for some individuals there will be no need to contact HMRC and once a tax code has been changed, HMRC will inform customers by letter or digitally if they’ve signed up for paperless options in the HMRC app, or online.

This is a welcome announcement following frequent reports at the huge numbers of overpaid tax HMRC has been returning to those drawing pensions at the end of each tax year, who have been on emergency rate tax codes.

It may still mean that some forward planning is required, particularly for overseas residents who need a NT tax code, but for all concerned it should hopefully speed up the process of any overpaid tax being returned. 

 

US Residents

With the new Trump administration now in place and pressing on at full steam, there’s plenty of focus on the USA.

When talking to your US based clients about their financial plans, it’s worth highlighting that an IFGL SIPP could be a great option to consolidate some of their previously built up pension savings. We can accept transfers in of UK pension savings as well as QROPS/ROPS, subject to our usual acceptance criteria. Our IFGL SIPP cannot accept transfers in from IRA or 401k schemes.

Advisers looking to establish terms of business with IFGL Pensions will also need to comply with the following requirements:

• For US resident members, we can only accept advisers holding the relevant US Series 65 exams who is registered with a US regulated firm.
• For non-US resident members with non-US regulated advisers, we will not accept Series 65 qualification as UK Level 4 equivalent due the requirement to be registered with US regulated firm for validity of the exam.

 

Hartley SIPPs successfully onboarded by IFGL Pensions

Around 900 clients from the failed Hartley Pensions have now successfully had their SIPP pension plans transferred over to IFGL Pensions. These SIPPs represent the first plans to transfer out of Hartley Pensions, which went into administration in July 2022 with more than 16,000 clients on its books.

Since July 2022, the plans have been overseen by the Administrators, UHY Hacker Young. IFGL Pensions has been working closely with UHY Hacker Young to effect the transfer.

Now that the SIPPs have been onboarded by IFGL Pensions, clients will be able to interact with their pension plans as normal.

IFGL Pensions Managing Director Rachel Meadows said: “This draws a line under what has been a worrying and uncertain time for those clients whose pension plans have been held in Administration. These transferring clients can be reassured that they can now re-engage with their pensions in a normal way, and our team will work with clients and their financial advisers to make sure any outstanding issues can be resolved.”

A further tranche of the Hartley Pensions book is also already in the process of transferring over to IFGL Pensions, and this is due to complete by the end of February.

 

IMPORTANT NOTE IFGL Pensions cannot accept any responsibility for any action taken or refrained from being taken as a result of this information.