01 NOV 2023

Technical Newsletter - November 2023

Issue 1 - November 2023

 

Welcome to our new newsletter which will be published monthly to provide a round-up of news and developments which may be of interest to you and your clients.

 

GENERAL

Autumn Statement

The Chancellor Jeremy Hunt has set a date for his autumn statement, which will be 22 November. Last year’s autumn statement of course was hugely controversial, leading to the resignation of Prime Minster Liz Truss and her chancellor Kwasi Kwarteng. No doubt the Government will be hoping for a more positive reaction to this one, which potentially could be the last autumn statement before the next General Election.

In the pension world, it is possible we may see a statement committing to the state pension triple-lock, something which is hugely controversial, but unsurprisingly very popular with older voters.

We also hope that the final form of the lifetime allowance changes will become clear. More on that further down this newsletter.

 

TEMPORARY NON-RESIDENCE FOR EX-PATS

Our colleagues at RL360 have published a helpful guide that explains the temporary non-residence rules and how these could apply to a policyholder that returns to the UK.

The temporary non-residence rules are anti-avoidance measures, which prevent formerly UK-resident individuals from realising income, or gains that would ordinarily be taxable in the UK whilst non-resident.

Whilst the guide looks at the rules through the lens of transactions made on a PIMS bond, the principles are relevant for members who take income drawdown payments and then return to the UK having been resident outside the UK for fewer than five years.

 

POWERS OF ATTORNEY BILL

On 14 September the Powers of Attorney Bill completed its parliamentary passage without amendment.

The Powers of Attorney Act 2023 makes changes to the Mental Capacity Act 2005, allowing improvements on how a lasting power of attorney (LPA) can be made. A new digital process has been introduced, along with an improved paper application system. The new online system will be easier, quicker and more convenient whilst also improving protections against fraud.

It is not yet known exactly when the Bill will come into force, however the Office of Public Guardian (OPG) says it is already working on the design of the digital LPA system and user testing. The OPG is working closely with the Ministry of Justice to prepare the changes to secondary legislation that will be needed to implement the new service. The bill is currently awaiting royal assent.

 

LIFETIME ALLOWANCE CHANGES

Confirmation of the lifetime allowance charge abolition is contained in the Finance (No.2) Act 2023, which has made its way through the House of Lords and now awaits royal assent. We are waiting for the final form of the bill to become clear, but what we do know is that four lump sum options will be taxed at marginal rate in future, rather than the old 55% when they exceeded the life-time allowance. These are:

(a)  A serious ill-health lump sum

(b)  A lifetime allowance excess lump sum
(c)  A defined benefits lump sum, or,
(d)  An uncrystallised funds lump sum death benefit.

Previously, funds exceeding the lifetime allowance taken as income incurred a lifetime allowance charge of 25%. This charge has not been replaced, meaning that during 2023/24, any excess taken as income drawdown will be charged income tax only in the usual manner, based on the recipient’s marginal rate.

 

STRUCTURED NOTES

On 1 September 2023, the administration of dealing instructions for IFGL Pensions passed from Sovereign Group Gibraltar to IFGL. We frequently receive queries on what our guidelines and limits are for structured notes. Broadly speaking, these are as follows:

• Underlying assets for notes that we accept must be linked to major indices and include equities, ETFs and funds. These are capped at a maximum of 4 underlying assets/indices in any one note.
• 20% of the overall portfolio can be held in notes, either as a single note or a number of notes up to that limit.
• Where the investments are held on the Ardan Platform, more flexibility is available on the above limit.

 

SERIOUS ILL HEALTH

This is not a pleasant subject, but some advisers and their clients may not be aware of the serious ill health payment option. This allows individuals with a terminal illness diagnosis to access their pension benefits in a lump sum payment form at any age, including before the current normal minimum pension age (NMPA) of 55. The payment is free from income tax up to the lifetime allowance limit of £1,073,100 (assuming no transitional protection exists) and above this from April 2023 is charged at the member’s marginal rate.

To process a serious ill health payment in line with the requirements of Finance Act 2004, we will require a declaration signed by a General Practitioner, confirming that the member is expected to live less than one year. We will require this in the form of a “letter of evidence” on headed paper, giving detail in the body of the letter of the medical condition/illness which provides the terminal diagnosis.

This can prove a useful planning tool in difficult times for clients.

 

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