What has happened over the last few weeks in personal finance? (16/04/2020)

Category: News

HMRC publishes new guidance on exceptional circumstances for the statutory residence test.

This applies to non-residents forced to overstay due to COVID-19. It states they may escape deemed UK tax residency. HMRC introduced the SRT to determine the tax residence status of individuals with connections to the UK.

The rules are complex, but they are vital when it comes to understanding an individual’s UK tax status. Various tests apply to determine whether HMRC should treat an individual as UK resident. The most familiar one being is if an individual spends 183 or more days in the UK. If they did, they would meet the first automatic test and be UK resident for the relevant tax year. If an individual does not meet this test some other tests have to be carried out. These are primarily based on the number of days spent in the UK over certain tax years together with any ties they may have with the UK. Examples of these are family ties and work ties.

Whether days spent in the UK can be disregarded due to exceptional circumstances will depend on the facts and circumstances of each case. HMRC’s recent guidance states exceptional circumstances could be:

  • are quarantined or advised by a health professional or public health guidance to self-isolate in the UK due to the virus,
  • find yourself advised by official Government advice not to travel from the UK as a result of the virus,
  • are unable to leave the UK as a result of the closure of international borders, or
  • are asked by your employer to return to the UK temporarily as a result of the virus,

Counting the cost of the Coronavirus

Back in March, the Office for Budget Responsibility (OBR) published its usual Economic and Financial Outlook (EFO). This projects the Government’s finances over the coming five years. It forecast public borrowing would be £54.8bn in 2020/21, £66.7bn the following year, and £57.9bn by 2024/25. The OBR’s global forecast was closed for new data on 14 February. For its central forecast, the OBR assumptions about Covid-19 were:

“…the associated economic disruption would be relatively short-lived and concentrated in China, with some transmission through supply chains to other parts of Asia and Europe. This implied a temporary impact on global GDP and trade, weighing modestly on UK activity in the first part of this year – a mild ‘V-shaped’ shock.”

In its latest commentary, it says that “coronavirus will see borrowing rise dramatically”. Just how dramatic that rise will be has been considered by the Institute for Fiscal Studies (IFS). In a paper published on the day (but before) Mr Sunak announced the Self-Employed Income Support Scheme (SEISS). The IFS splits the Covid-19 cost into three elements:

  • Impact of a smaller economy: The IFS assumes the economy will shrink by 5% in 2020, whereas the EFO had assumed 1.1% growth. That contraction and the resultant fall in tax revenue alone accounts for increased borrowing in 2020/21 of £72bn, once a few countervailing benefits (lower interest rates and more QE) are allowed for.
  • Direct cost of fiscal measures implemented in response: The numbers here are less certain. This is because it is not clear what the take up of the Coronavirus Job Retention Scheme (CJRS) and the SEISS will be and how long they will be paid. The IFS ballpark figure, allowing for an SEISS postscript addition, is £60bn. This is based on no extension beyond three months and a 10% take up for the CJRS. The suggestion from the Deputy Chief Medical Officer that social distancing may last six months would add about £20bn to that figure.
  • Loans, guarantees and deferrals: The Government has promised £330bn of loan guarantees. However, what that will cost depends on loan take up and subsequent calling in of the guarantee. A similar scheme was launched in 2009, in the wake of the financial crisis: uptake to date is £3.3bn. The deferral of one quarter’s VAT is worth £30bn, but how much of that never gets paid is similarly uncertain.

The IFS suggests, based on three months’ lockdown, that perhaps an extra £130bn will be added to borrowing in 2020/21. This would take it to about £190bn (around 9% of a reduced GDP). However, the IFS says, “There is a substantial chance that borrowing will turn out considerably more than this if the economic hit is greater or a large fraction of private sector employers take advantage of the employment retention scheme.” The peak borrowing during the financial crisis was 10.2% of GDP in 2009/10.

Beyond 2020/21, the IFS reckons that even if Covid-19 is behind us “…the tax and spend trade-offs facing policy makers will be made more stark for years, and more likely for decades, as they strive to bring debt back down over the longer-term”.

The Government’s manifesto pledge not to increase tax could well become another victim of Covid-19. On Thursday Mr Sunak gave a clear hint that NIC rates could be moving up for the self-employed. But an extra 1% on all Class 4 NICs would only raise about £0.6bn according to the HMRC ready reckoner. 1% on income tax rates or VAT or all NICs raises about £6bn-7bn.

Execution of wills and deeds during Coronavirus

Life goes on during this time of coronavirus crisis. Given we don’t know how long it will last, there is no reason for people not to continue with sorting out their personal and financial affairs. In fact, many more people are contacting professional advisers about drafting wills and executing powers of attorney. Many others will also want to put in place their plans for orderly estate planning, which may well involve creating a trust and/or making gifts to trusts.

Unfortunately, things may get complicated when the individual in question is either in self-isolation or must practice social distancing.

The general recommendation is that clients should be given the option of meeting via telephone or videoconferencing. This method can easily be adopted for a discussion with the client, including making an appropriate recommendation. If a trust or a will is recommended, a suitable draft can be discussed and prepared as well. Unfortunately, when it comes to the execution of the relevant document, there may be difficulties.

Let’s start with wills.

In England and Wales Section 9 of the Wills Act 1837 (the 1837 act), so far as material, provides:

‘No will shall be valid unless –

  • it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and
  • it appears that the testator intended by his signature to give effect to the will; and
  • the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and
  • each witness either—(i) attests and signs the will; or (ii) acknowledges his signature, in the presence of the testator (but not necessarily in the presence of any other witness), but no form of attestation shall be necessary.’

Clearly, attestation by two witnesses present at the same time, while maintaining personal separation, is a particular difficulty. This is especially true if the testator is in isolation and unable to ask independent witnesses into the room.

Witnessing a will from the next room or through a window might be challenged as not being formally in the testator’s presence. An old case law (Casson v Dade 1781) suggest it may be sufficient to have two witnesses who are in line of sight though not in the same room.

As for deeds, here we have the requirements of the Law of Property (Miscellaneous Provisions) Act 1989 which also require a witness being present during execution.

Where there are two or more parties to a deed, it can be executed in counterparts which allows each party to execute separately (a copy of an identical document), however this does not resolve the problem of witnesses.

A recent decision suggests that witnessing via Skype is also not acceptable. The Government recently confirmed its position on electronic signatures being in line with the Law Commission’s recommendations. As reported previously electronic signatures are perfectly acceptable in most commercial transactions, but not yet in wills. Deeds may be executed electronically provided the formalities relating to their execution are satisfied. This would be the case if a secure system using an “advanced” or “qualified” electronic signature is used (such as Docusign).

Both wills and deeds are now subject to a separate consultation with a view to clarifying and simplifying the position. However, such projects usually take time. On the other hand, given the extraordinary situation in which we find ourselves and the real need to address the issue, it is hoped that the Government may issue guidelines on relaxation of the strict rules during this period.

Many providers of draft trusts are actively looking for ways to simplify the process of executing documents, whilst ensuring their legality.

If documents are executed without the required formalities, we will no doubt see in due course what view the Courts would take in the event of any subsequent dispute.

In many other jurisdictions (not in the UK so far) we have seen the Courts taking a pragmatic approach, including accepting a will made by text as valid. In a 1941 case, in Canada, a Court accepted a will scratched into the side of a tractor by a dying farmer who was trapped underneath.

More recently, also in Canada, a will hastily written on a McDonald’s napkin (while the testator wrote it thinking he was having a heart attack, and then handed it over to one of his children) has been formally accepted by a Judge.

As far as trusts are concerned, whilst in England there are no special legal formalities to satisfy in order to make a trust (other than for trusts of land or equitable interests), most trusts will be set up by means of a trust deed, which will require the usual formalities to be complied with. It should be remembered though that trusts of life assurance policies may be created by means of a trust request, if done at the time the policy is applied for, which does not involve a deed, so no witnesses should be necessary.

What we know about pension contributions in Covid-19 support measures

With many people experiencing changes in their lives due to the Covid-19 restrictions, there have been sudden changes to peoples earning patterns and overall income. Here we aim to cover those issues we have answers to, and those we are still awaiting more information on.


For companies that are furloughing employees, they can claim up to £2,500 per month wages for each furloughed employee, to a maximum of 80% of the employee’s wages in February 2020. In addition to this amount the grant will also pay the employers National Insurance contributions and minimum auto enrolment contributions on the wage that is being granted. Should the employer be paying more than the minimum or continue to pay their employees at their full income then no extra can be claimed.

It is our understanding that the auto enrolment contributions can only be claimed for those employees that are currently members of the employer’s auto enrolment scheme or qualifying workplace pension scheme. If the member has opted out, then any contributions the employer pays is not covered by the job retention scheme.

The government has warned that the furlough scheme does not alter contracts of employment so ongoing contributions or other benefits under a contract of employment should continue. We are not contract lawyers so cannot comment on any issues arising because of this.

The online claim system for the job retention scheme will not be available until towards the end of April.

Relevant UK Earnings

There has been some concern that money paid from the Government to support employees and the self-employed will not be deemed relevant UK earnings for tax relief on pension contributions.

For employees this is clear, the grants are paid to the employer who continues to pay their employees in the same way they would usually, using PAYE. National insurance contributions and tax will be payable on the income received. This means that the income is still deemed earnings and therefore relevant UK earnings.

For the self-employed, the same should apply. It is believed the grant paid will be deemed self-employed profit and will need to be declared accordingly, with associated tax paid through self-assessment. Again, this would mean that it would qualify as relevant UK earnings.

Pension contribution refunds.

For some the downturn in business or a loss of a job may result in pension contributions already paid personally in 2019/20 exceeding their relevant UK earnings. Given it will only likely be one month where earnings have been impacted, we do not expect this to be a large number of clients. However, should large personal contributions have already been paid that will now exceed their available tax relief, these can be refunded after the end of the tax year. This does not mean that contributions in excess of the annual allowance or tapered annual allowance can be refunded, only those in excess of relevant UK earnings, which are therefore not entitled to tax relief.

The same does not apply to employer pension contributions, there is no test against relevant UK earnings so pension contributions already paid will still be valid.

Public sector pension and proposals to rectify age discrimination

The Government are developing proposals to address public sector pension scheme age discrimination. The aim is to rectify the unlawful age discrimination identified by the 2018 McCloud Court of Appeal judgement relating to the 2015 reforms to the judicial and firefighters’ pension schemes. The ruling related to the fact that when the 2015 schemes were introduced, workers within ten years of their normal pension age had been allowed to remain in the original scheme, while younger workers were moved into the new 2015 schemes.

The Government has previously agreed that the ruling will also apply to other public sector schemes such as the Teachers scheme and the NHS scheme.

In a written statement (HCWS187) to Parliament on 25 March 2020, Economic Secretary to the Treasury John Glen said: “The proposals the Government [are] considering would allow relevant members to make a choice as to whether they accrued service in the legacy or reformed schemes for periods of relevant service, depending on what is better for them.”

The Government is “developing proposals, Mr Glen said that “if an individual’s pension circumstances change as a result, the Government may also need to consider whether previous tax years back to 2015–6 should be re-opened in relation to their pension”.

The Government has been in discussions with pensions scheme, trade unions, staff associations and public service employers to help shape the proposals.

The proposals may mean that millions of public sector workers, including retired members, will need to make complex calculations to work out which scheme would benefit them the most. Retrospective changes may also require members to recalculate annual allowances and tax charges for previous tax years.

Detailed proposals will be published later in the year and will be subject to public consultation.

TPR allows for delays in answering transfer requests

In its guidance to trustees’ issue don 27 March 2020, The Pensions Regulator (TPR) has indicated to trustees that may wish consider delaying by up to three months the:

Payment of previously requested Cash Equivalent Transfer Values (CETVs), and Issue of newly requested CETVs.

The reasons given for this are:

  • An expected increase in demand for CETVs could divert a potentially reduced administration staff away the primary requirement of paying pensioner benefits.
  • To allow trustees to review the terms they are offering for CETVs given the current volatility in financial markets and the deterioration in funding levels.

TPR acknowledges that this may mean breaching the disclosure requirements associated with the CETV process. Whilst TPR admits it cannot waive the requirement for trustees to report either of the above actions to TPR, they won’t take regulatory action against trustees over the next three months in relation to this. They also confirm that the Pensions Ombudsman will take TPR’s guidance, and the impact of the coronavirus generally, into account when determining whether trustees took reasonable action.

DWP publish pensioners’ income series data

The DWP have published Pensioners’ incomes series: An analysis of trends in Pensioner Incomes: 1994/95 to 2018/19. This report examines how much income pensioners get each week, and where they get that income from. It looks at how their incomes have changed over time, and variations in income between different types of pensioners.

  • Average pensioner incomes after housing costs stable between 2009/10 and 2018/19
  • The average income of all pensioners after housing costs in 2018/19 was £320 per week which has remained stable since 2009/10 when it was £314 per week.
  • In 2018/19, the average income for pensioner couples was £474 per week. This was more than twice that of single pensioners, who had an average income of £216 per week.
  • Pensioner couples less reliant on benefit income than single pensioners
  • In 2018/19, benefit income, which includes State Pension, was the largest component of total gross income for both pensioner couples and single pensioners. This was 57 per cent for single pensioners, while for pensioner couples it was 36 per cent.
  • Income from occupational pensions was 32 per cent of total gross income for pensioner couples and 26 per cent for single pensioners.
  • Income from earnings made up six per cent of total income for single pensioners. For pensioner couples, 18 per cent of total income was from earnings. Twenty-four per cent of pensioner couples contained one adult below State Pension Age. For some of these couples, the adult below State Pension age contributed to the earnings income.
  • Average income of male and female pensioners become more similar
  • Single male pensioners had higher average incomes than single female pensioners in 2018/19. Single men had an average weekly income of £228 and single women had an average income of £211. This difference is no longer statistically significant, as it was in 2017/18.
  • The average weekly incomes of both single men and single women were slightly lower in 2018/19 than 2009/10, when they were £236 and £212 respectively.
  • Nearly two thirds of total income from single female pensioners was benefit income.
  • The difference in incomes between single male and single female pensioners reflects differences in the components that make up individuals’ total gross income.
  • In 2018/19, benefit income, which includes State Pension, made up 64 per cent of total gross income for single women. For single men, this value was 47 per cent.
  • Twenty-nine per cent of total gross income for single men came from occupational pensions. For single women, this was 25 per cent.
  • Income from earnings made up 11 per cent of total gross income for single men. For single women, this was four per cent. Single female pensioners being older on average may be a contributing factor here, as they may be less likely to work.
  • 98% of pensioners now in receipt of state pension.
  • Nearly all pensioners (98 per cent) were in receipt of the State Pension in 2018/19. This has increased from both 1994/95 and 2009/10, when 94 per cent and 96 per cent of all pensioners were in receipt of the State Pension respectively. The increases between 1994/95 and 2018/19 and between 2009/10 and 2018/19 are both statistically significant

MaPS urges everyone to review their finances during the coronavirus pandemic

In a Press Release, the Money and Pensions Service (MaPS) is encouraging people to pay extra attention to their financial wellbeing during the coronavirus pandemic and to consider what protective steps they can take now to avoid money worries later on.

Its guidance, published on 18 March, ranges across a number of financial matters, acknowledging that this health-based emergency will for some create a financial emergency too.

The online guidance provides some useful pointers and links for those worried about matters such as getting behind on mortgage payments and utility bills, with a practical suggestion right at the start of making an emergency budget.

If you want to know more, please feel free to book in a free no-obligation chat here or get in touch.

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