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Flashcards in Contributing to Pensions Deck (85):
1

What is the maximum age to make pension contributions

Under 75

2

Where the extra tax relief is claimed via self-assesment
how is this acounted for

The gross amount of the contribution is added to the employee's basic rate tax band. This provides the additional tax relief by increasing the amount of income taxed at 20% (rather than 40%) or 40% (rather than 45%)

3

In respect of employer contributions what test is applied to make sure that contributions qualify for tax relief

The tax relief will be awarded if they pass the "wholly and exclusively" for the purposes of trade test.

4

What is ANI (Adjusted Net Income)?

ANI is total grossed up income in the tax year from all sources less certain deductions e.g. Charity Contributions or trading losses. Another deduction is the gross value of personally made pension contributions.

5

When is ANI applied?

1) Those who claim Child Benefit and have one person in the household has an ANI of more than £50k
2) Individuals with ANI over £100 will lose £1 for every £2 over £100k. IE at £123,000 the entire personal allowance of £11,500 (17/18) is lost.

6

Recycling of PCLS.
What are the 6 conditions that were all met will lead HMRC to treat the entire PCLS as an unauthorised payment?

1. The individual receives a PCLS which when added to any other PCLS drawn in the previous twelve months exceeds £7,500.

2. The PCLS means that the pension contribution paid on behalf of the individual is significantly greater than it would otherwise have been.

3. 'Significantly Greater 'is taken to be 'more than 30%' of the contributions that might otherwise have been expected.

4 And the cumulative sum of extra contributions exceeds 30% of the PCLS

5. The additional contributions can be made by the individual or by someone else, such as an employer.

6. The recycling was pre planned.

7

Why did Chris case not break PCLS recycling rules?

Check on SL and notes from Pensions marketing.

8

Consideration. Where client is over 75 and/or has no relevant UK earnings should he make a pension contribution in order for funds which would otherwise be subject to IHT to be excluded from the estate?

Plus -
Reduces IHT by 40%

Minuses -
No relief on pension contribution
Tax for beneficiaries on withdrawal

9

Annual Allowance
When was the Pension Input period (PIP) changed to coincide with the tax year in all cases?

Summer Budget 2015

There were transitional rules for 2015/16

10

What is the Annual Allowance Charge (AAC)?

Where the total input amount exceeds the allowance. The excess is charged at the individuals tax rate. This is calculated by adding the excess to the NAI to see what tax rate payable.

11

What is 'Scheme pays'?

Where the AAC exceeds £200 the member may have the right to elect for the scheme administrator to pay some or all of the charges on their behalf.

12

What are Key dayes in changing Annual Allowance rules?

13/14 - AA = £50,000
£40,000 thereafter
Although 15/16 two mini tax years. up to 8th July and After 8th July 15.
MPAA rules came in reducing all those who want to access funds flexibly from drawdown had a £10,000 annual allowance imposed. This is to be reduced to £4000 from 17/18

13

Does MPAA apply to those accessing income on fixed drawdown basis? What if they change how much they take as an income?

Find out answer

14

Pre - Alignment Tax Year

6 April 15 to 8th July 15. Annual allowance of £80,000 with maximum CF of £40,000 to the post alignment mini tax year 9th July 2016 to 5 April 2016.

15

What are present AA rules for High Earners?

Subject to two tests High Earners will have their AA tapered.

16

What are the two tests?

Net Income is :Gross Income less Allowable deductions and net pay contributions to an employers pension scheme. Note Relief at source pensions contributions are not deducted.

Test 1) Threshold Income + Net Income PLUS salary that has been sacrificed for pension contributions. (Only for SS arrangements starting on or after 9th July 2015
LESS
the gross amount of any relief at source contributions
LESS
Any gross gift aid charity donations made in tax year.

where Threshold income does not exceed £110,00 there is no need to carry out Adjusted Income Test.

Test 2) Adjusted Income Test
Meets test at £150,000

Net Income
PLUS
Any Gross Net Pay contributions
PLUS
Employer input value.

17

What is Employer input value in the context of the previous question?

Money purchase premiums paid into members policy in the tax year
or
input value of a DB net of the employee pay contributions. EG If DB input value for the year was £38,500 but the member had put in net pay contributions of £2,500 the employer input value for Adjusted income purposes would be £36,000.
The total of Net Pay contributions and Employer input value = the TOTAL DB Pension Input amount (DB PIA)

18

What is formula for calculating Pension Input for a DB scheme?
Look at scheme with following assumptions.
1/80th scheme with 3/80ths lump sum
Pensionable income Year 1 = £76,000
Pensionable Income Year 2 £79,000
CPI 4%
Service to date 30 years
AVC contribution

Year 1
([30/80x£76,000]x16) + (90/80x£76,000) = £456,000 + £85,500 = £541,500
+cpi 4% = £563,160
Year 2
([31/80x£79,000] x 16) + (93/80 x £79,000)+ £489,800 + £91,837.50 = £ 581,637.50

Deemed contribution = £581,637.50 - £563,160 = £18477.50

19

What is formula for :
Net Income
Threshold Income
Adjusted Income

Net Income =
Gross Income
- Allowable Deductions
- Net Pay contributions

Threshold Income =
Net Income
+ salary sacrifice for new schemes after 9 April 2015
- PRAS

Adjusted Income=
Net Income
+NP Contribution
+Employers Input Value (Total Contribution less NP contribution)

Remember PRAS only applied to Threshold Income

Net Income
-
-

Threshold Income

+
-

Adjusted Income

+
+

20

What are the rules for allowing death benefits to be paid tax free?

Subject to deceased member being below age 75 and the beneficiaries informing the scheme administrator within 2 years of death of member.

21

How does the Guarantee credit element of Pensions Credit work?


How guarantee credit works
Guarantee credit tops up your weekly income to £159.35 for single people and £243.25 for couples in 2017/18. To qualify for it, you must:

live in the UK
have reached pension-credit qualifying age (the same as state pension age) if you're a woman
have reached the state pension age of a woman born on the same day as you if you're a man
have weekly income below £159.35 if you're single and £243.25 if you're in a couple.
If you're a carer, have severe disabilities or certain housing costs, you might qualify for more guarantee credit.

When you apply for guarantee credit, the government looks at all of your income. This includes both your basic and additional state pension, any income from other pensions, income from any jobs you have and any savings over £10,000.

Some benefits, such as housing benefit, council tax reduction and attendance allowance, aren’t included, nor are your personal possessions or your home.

22

How does the Savings Credit Element of Pension Credit work?

How savings credit works
The government will give people a little extra money to reward them for saving towards their retirement. This comes in the form of savings credit, which has now disappeared for those reaching state retirement age after April 2016.

There's a few criteria that you needed to meet (and still do) before you qualified for savings credit:

you have a minimum income of £137.35 a week if you're single, and £218.42 a week if you're in a couple in 2017/18
you or your partner must be 65 or over
you must be living in the UK
you must have made some provisions for your retirement, such as savings or a second pension.
The way it's calculated works like this: for every £1 by which your income exceeds the savings-credit threshold (£137.35 for a single person in 2017/18 and £218.42 for a couple), you get 60p of savings credit.

So, say you have an income of £122.30 a week from the basic state pension, and an income of £30.05 a week from a private pension, your total weekly income would be £152.35
Your weekly income is £15 over the savings-credit threshold. This means you would qualify for £9 a week of savings credit.
The maximum savings credit you can get per week is £13.20 for a single person and £14.90 for couples.

If your income is less than or equal to the savings-credit threshold, you won’t qualify for this benefit.

23

State Pension

What are changes in ages to qualify for state pension ?

Up to Nov 18 - Females move to age 65
Nov 2018 to 2020 moves from 65 to 66
2026 to 2028 moves from 66 to 67
2044 to 2046 moves from 67 to 68

24

State Pension Changes
Qualifying rules?

Old (pre 6/4/2016)
Min 1 year NI contributions
30 years for max BSP
Use former spouses credit

New
Min 10 years
35 Years for max STP
Own record only

25

State Pension rule changes

What are Deferment Rules

Old

5 weeks at 1% (10.4%)
Cash option after 12 months
Spouse inherits on death during deferral

New
9 weeks at 1% (5.8%)
No cash option
3 months payments claimed at best on death

26

Set Pension Rule Changes

What are the amounts?

New Single Tier State Pension (STSP)
No more contracting out
Protected amount for people who had accrued more benefits under old scheme (CPI Linked)
People with insufficient NIC credits will have. A Foundation amount (lower than STSP)
No deferment for cash commutation for eligibility post 6/4/16
No more use of someone else’s NI history to claim pension

27

What are rules on transferral of personal allowance?

Can only be transferred to basic rate tax payer
Recipient could make pension contribution to widen Basic rate tax band
Transfer between married couples and civil partners only
Can go back 2 years
Can be done online or over the phone

28

Systematic risk is where an individual stock isn’t effected in isolation but the whole sector pr whole market falls. What is Systemic Risk?

Systemic Risk is where there is a domino effect which risks pushing financial markets into melt down

29

How are chattels taxed for CGT?

Chattels (i.e. tangible movable property) are completely exempt from CGT if the value at
disposal does not exceed £6,000. This limit applies per person where a married couple jointly
owns a chattel.
Where the disposal proceeds exceed £6,000, the chargeable gain cannot exceed five-thirds of
the excess over £6,000. For example, if a ring costing £1,000 is sold for £7,800, the chargeable
gain cannot exceed £3,000 ((£7,800 – £6,000) × 5/3). Therefore, the chargeable gain is £3,000,
rather than the ‘actual’ gain of £6,800.
Tangible movable property which is a wasting asset (i.e. with an expected life of less than 50
years, such as a yacht) is completely exempt from CGT. However, this exemption does not
apply to plant and machinery used in a business where capital allowances have been claimed
– but note that motor cars (see below) are always exempt regardless of business use.

30

What are rules on Entrepreneurs Relief

Must have held asset for 1 year min
Available for sole traders, partnerships or 5% shareholder
10% rate
Lifetime limit off £10,000,000
Has to be trading company
Can use Annual CGT limit £11,300
Tax due on 31st January following end of tax year in which disposal made . Ie disposal made in 17/18 would result in tax being paid on 31 Jan 2019

31

How does Primary protection work?

Gives an individual with pre 6/4/2006 pension rights in excess of £1.5m a higher LTA using Primary Protection Factor (PPF)
The factor is rounded up to 2 decimal places.
The formula is
Value of pension rights on 5/4/2006 - £1.5m
———————————————————-
£1.5m
Since 6/4/2012, the PPF is always applied to £1.8m (underpinned LTA)

Contributions can be continued to be made and/or benefits accrue after A Day

LTA Charge is applied to excess over personal LTA

32

Calculate the personal LTA for Ben.

Pension rights of £2.1m on 5/4/2006

Primary Protection Factor =

(£2.1m - £1.5m). £600,000
———————- = ——————————— = 0.40 0r 40%
£1.5m. £1.5m

PPF is applied to underpinned LTA of £1.8m

Therefor

£1.8m + (£1.8mx40%) = £2.52m

33

Question
Dave has primary protection in respect of his pension rights on A Day. However he does not have a protected tax free cash lump sum. What is is his entitlement to a tax-free cash lump sum?

Anyone with primary protection, who does not have a protected tax-free cash lump
sum, will still be able to take a tax-free cash lump sum of up to 25% of £1.5 million. This rule
will similarly apply to enhanced protection.

34

How does enhanced protection work?

Any one with benefits at 6/4/2006 could register for enhanced protection. Including those with benefits below LTA (if individual felt there was a risk that funds would exceed LTA in the future)
No further contributions could be made. some complicated exceptions for DGBs schemes where limited further payments can sometimes be made.
Also DIS cover in place before 6/4/2006 can continue.

Subject to no further contributions rule above then under Enhanced protection an individual is not subject to LTA charge when benefits taken.

35

Under enhanced protection what are the rules for a member who does not have protected tax-free cash?

Therefore, anyone with enhanced protection, who does not have a protected tax-free cash lump
sum, will still be able to take a tax-free cash lump sum of up to 25% of £1.5 million. This rule
will similarly apply to primary protection.

36

WHAT ARE THE TRANSITIONAL RELIEFS ESTABLISHED AT A DAY (6/4/2006)?
——————————-

Primary Protection
And
Enhanced Protection

37

Explain Primary Protection

- Available where individual has pension funds in excess of £1.5m on A Day
- Gives individual a higher LTA
- Contributions can continue to be made after A Day
- Rounded up to 2 decimal places

- LTA charge is applied to excess over LTA at BCE

38

Give formula for Primary Protection Factor (PPF) used in working out higher persona LTA

Formula for Primary Protection Factor (PPF):

Value of pension rights on 5/4/2006 - £1.5m
———————————————————
£1.5m

39

Since 6/4/2012 to what figure is the Primary Protection Factor applied?

Give an example of how a calculation would work.

Since 6/4/2012 PPF is applied to £1.8m. This is called the “underpinned LTA”

Example where client has £2.1m of pension value on 5/4/2006 and has got primary protection.

PPF = (£2.1m-£1.5m). £600,000
——————- = ——————. = 0.4 or 40%
£1.5m. £1.5m

PPF is applied to underpinned LTA of £1.8m. Therefore:

£1.8m + (£1.8m x40%) = £2.52m

40

James, who is 65, had pension benefits valued at £2.7 million on 5 April 2006 and therefore
applied for primary protection. He retires and takes all of his benefits on 1 June 2017. The
value of his benefits had increased to £3 million on 1 June 2017.
a) Calculate, showing your workings, James’ primary protection factor.

PPF =

a) £2.7m - £1.5m
—————— = 0.8 or 80%
£1.5m

41

James, who is 65, had pension benefits valued at £2.7 million on 5 April 2006 and therefore
applied for primary protection. He retires and takes all of his benefits on 1 June 2017. The
value of his benefits had increased to £3 million on 1 June 2017.

b) Calculate, showing your workings, James’ personal LTA and state whether James will
be subject to a LTA charge when he takes his benefits in June 2017.

James personal LTA =

Underpinned LTA £1.8m + (£1.8m x 80%) = £3.24m

Personal LTA of £3.24 is higher than James’s pension benefits of £3m therefore there is no LTA charge

43

Explain Fixed Protection

- Similar to Enhanced Protection
- No further contributions after 6/4/12, 6/4/14 or 6/4/16 depending on date of fixed Protection arrangement
- contributions however can continue to existing Life cover in respect of FP 2012.
- no new registered pension scheme may be started other than to accept a transfer value

44

Explain further FP 2012

- This was the transitional arrangement to protect the higher LTA when it reduced form £1.8m to £1.5m
- Had to register FP 2012 by 5/4/12
- Benefits above £1.8m will be subject to LTA charge upon crystallisation
- PCLS is also protected up yo 25% of £1.8m ie £450,000

45

Explain Fixed Protection 2014

- This was to protect LTA of £1.5m when it dropped to £1.25m.
- Had to register by 5/4/14

46

Explain Fixed Protection 2016

- This was to protect £1.25m LTA when it dropped to £1m
- No formal deadline for registering but must be registered before benefits are crystallised.

47

Describe Individual Protection (IP)

- Can’t apply for IP if you have Primary protection
- You can apply for IP if you have any version of Fixed protection or none
- Existing Fixed protection takes precedence
- Max PCLS will be 25% of protected LTA

48

Describe Individual Protection 2014

- This was for people with pension savings greater than £1.25m on 5/4/2014
- Further contributions can be made
- protected LTA is = to pension savings on 5/4/14 subject to £1.5m max
- Applications must have been received by 5/4/17

49

Describe Individual Protection 2016

- This was to protect people with pension savings in excess of £1m on 5/4/2016

- Protected LTA = Value of pension savings on 5/4/16 subject to max of £1.25m

50

What is happening to LTA from 2018?

Indexing linked to CPI

51

Pension Credits - Divorcing Couple

How can this affect primary protection?

The Primary Protection Factor (PPF) ha sto be recalculated where the value of pension debit rights has been taken away from the original benefit valu on 5/4/2006 (A day).

If the reduced value as at 5/4/06 is lower than £1.5m then the primary protection is lost.

This is the only way to lose Primary Protection

52

Explain the rules surrounding Protected PCLS

- Since A Day the lower of 25% of value and 25% of LTA can be paid as PCLS
i.e. max PCLS = 25% of £1.5m (£375,000) on A Day

- A PCLS of higher than £375k on A day could be protected with primary or enhanced protection.

53

Explain PCLS and Primary Protection

If Primary Protection selected then where PCLS is greater than £375k on A day protection applies.

- Because of reduction in LTA those with primary protection can index the protected PCLS using the underpinned LTA of £1.8m

54

EXample
Frances had an entitlement to PCLS of £500,000 on 5 April 2006 and she registered for
primary protection.
She draws her benefits in 2017/18.
What will Frances’ entitlement to PCLS today will be?

(£500k x £1.8M)
———————- = £600,000
£1.5m

However the above formula does not apply if PCLS pre A DAy is less than £375,000.
Instead PCLS entitlement will be greater of 25% of standard LTA at time of taking benefit
Or
25% of £1.5m whichever is the greater.
However PCLS is still limited to 25% of benefit value if lower.

55

PCLS and Enhanced Protection

EXplain

There is a slight difference in the rules
Where A day PCLS is greater than £375k entitlement to PCLS is %age of benefit value at a Day.

Where a day benefits are less than £375,000 then entitlement is subject to max of:
25% of standard LTA in year taken or
£375,000
However also limited to 25% of the value of the benefit if this is lower.

56


Jenny had an entitlement to PCLS of £540,000 on 5 April 2006. Her total benefits were
valued at £1.8 million on 5 April 2006. She registered for enhanced protection.
She draws her benefits in 2016/17, when the value of her benefits has increased to £2.3
million.
Calculate Jenny’s PCLS when benefits are taken.

£540K/£1.8m = 0.3 or 30%

Max PCLS = 30% x Value at time of taking benefits £2.3m = £690k

57

Scheme Specific Protected PCLS

Explain

Where PCLS on a day exceeds 25% then protected PCLS =

PCLS as at A DAY x £1.8m
——————————-
£1.5m


Plus

Fund Value now - (fund value on A day x 1.8)
———————————. X 25%.
1.5


58

As at A Day, Rupert’s Executive Pension Plan (EPP) was valued at £660,000 with a tax-
free cash entitlement of £296,000. In March 2012 Rupert elected to take fixed protection
2012 (although this pension fund is not close to £1.8m Rupert has other pension funds).
Rupert, who is now 69, now wishes to take the benefits from his EPP. The Scheme
Administrator has offered to secure a scheme pension for him, at a rate of 7% per annum.
Rupert therefore decides to take the maximum possible PCLS and then have the Scheme
Administrator purchase a scheme pension on his behalf with the balance of the funds.
Rupert has not previously crystallised any of his other pension benefits. Assuming the EPP
is crystallised in 2017/18 when the funds are valued at £975,000, calculate:
1. Rupert’s maximum PCLS

1) Max PCLS
Check % of PCLS at A DAY. £296,000
—————. = 0.4485. 0r 44.85%
£660,000

1. Max PCLS = £296k. X £1.8m
———. = £355,200
£1.5m

Plus. 975k -(660k x 1.8
—. X 25% = £45,750
1.5)


£355,200 + £45,750 = £400,950

59

As at A Day, Rupert’s Executive Pension Plan (EPP) was valued at £660,000 with a tax-
free cash entitlement of £296,000. In March 2012 Rupert elected to take fixed protection
2012 (although this pension fund is not close to £1.8m Rupert has other pension funds).
Rupert, who is now 69, now wishes to take the benefits from his EPP. The Scheme
Administrator has offered to secure a scheme pension for him, at a rate of 7% per annum.
Rupert therefore decides to take the maximum possible PCLS and then have the Scheme
Administrator purchase a scheme pension on his behalf with the balance of the funds.
Rupert has not previously crystallised any of his other pension benefits. Assuming the EPP
is crystallised in 2017/18 when the funds are valued at £975,000, calculate:

2. The resulting scheme pension
3. The amount of lifetime allowance he will have remaining.

2
Scheme pension =
Fund value £975,000 - PCLS £400,950 =£574,050
Scheme pension at 7%p = £574,050 x 7% =£40,183.50pa

60

As at A Day, Rupert’s Executive Pension Plan (EPP) was valued at £660,000 with a tax-
free cash entitlement of £296,000. In March 2012 Rupert elected to take fixed protection
2012 (although this pension fund is not close to £1.8m Rupert has other pension funds).
Rupert, who is now 69, now wishes to take the benefits from his EPP. The Scheme
Administrator has offered to secure a scheme pension for him, at a rate of 7% per annum.
Rupert therefore decides to take the maximum possible PCLS and then have the Scheme
Administrator purchase a scheme pension on his behalf with the balance of the funds.
Rupert has not previously crystallised any of his other pension benefits. Assuming the EPP
is crystallised in 2017/18 when the funds are valued at £975,000, calculate:

3. The amount of lifetime allowance he will have remaining.

3.Remaining LTA

£1.8m - PCLS £400,950 = £1,399,050
Less
Scheme pension x 20 = £40,183.50 x 20 = £803670
Total remaining LTA = £595,380

62

Explain Enhanced Protection

- Can register for Enhanced Protection no matter what value of pension benefits are.
- No further contributions permitted
- There are some minor exceptions to further contributions in the case of of DIS in place before 6/4/2006
- also some complicated rules that allow further limited payments /accruals under a DB scheme where benefit paid out doesn’t exceed the so called “appropriate limit”
- Individual is not subject to LTA charge whatever level the benefits are.

63

Death Benefits from Pensions
When considering the Death Benefit under a 50% value protected pension what iOS the formula to calculate benefits due?
Assume member pension before death of £9500pa paid for 1 full year.

£9,500 (pension) x 20 (factor)
Less
£9,500 (pension) x 1 (years benefit taken)

= (£190,000-£9500)/2(50% benefit) = £90,250

64

WHAT ARE BENEFITS AND DRAWBACKS OF THE DEATH BENEFITS UNDER A SCHEME PENSION?

Scheme pension
BENEFITS DRAWBACKS
Death benefits
following
death of the
member
 Can be set up to provide a
guaranteed income for a
spouse, civil partner or
dependant (only).
 May include pension
protection.
 Cannot include survivor’s benefits
for a beneficiary who does not meet
the HMRC rules for being a
dependant.
 Decisions relating to the inclusion of
a spouse, civil partner or
dependant’s pension must be made
at outset and cannot be changed –
or are included in scheme rules,
which members cannot change
easily..
 Survivor’s pension subject to income
tax at the survivor’s marginal rate
regardless of the age of the member
on death.

65

WHAT ARE BENEFITS OF THE DEATH BENEFITS UNDER A LIFETIME ANNUITY?

BENEFITS

Can provide a guaranteed
income for a beneficiary.
- Beneficiary does not have to
be a spouse, civil partner or
dependant.
- May include annuity
protection.
- May include any length of
guarantee period (subject to
the provider’s rules).
- Benefits are paid to survivors’
tax free if the member dies
before the age of 75.

66

WHAT ARE DRAWBACKS OF THE DEATH BENEFITS UNDER A SCHEME PENSION?

- Decisions relating to the inclusion of
a survivor’s pension must be made
at outset and cannot be changed.
- Any survivor’s annuity must cease
on the survivor’s death.
- No lump-sum death benefits unless
annuity protection is selected. Once
this has been paid out it is within the
beneficiary’s estate for IHT
purposes unless paid into a suitable
trust.

67

WHAT ARE BENEFITS OF THE DEATH BENEFITS UNDER UFPLS?

- Any uncrystallised fund not
taken as an UFPLS remains
available for client’s
beneficiaries (tax free on
member’s death before the
age of 75).
- Uncrystallised funds can be
used by the survivor to
provide a lump sum, annuity
income or be designated to
drawdown.
- If designated to drawdown the
funds can be passed onto
future generations within the
pension’s tax wrapper,
thereby not forming part of the
survivor’s estate for IHT
purposes.

68

WHAT ARE DRAWBACKS OF THE DEATH BENEFITS UNDER UFPLS?

- Any UFPLS taken and not spent will
be within the client’s estate for
inheritance tax purposes.
- Any uncrystallised funds taken as a
lump sum will form part of the
beneficiary’s estate for IHT
purposes unless paid to a suitable
trust.

69

WHAT ARE BENEFITS OF THE DEATH BENEFITS UNDER CAPPED DRAWDOWN

- Balance of the crystallised
fund remains available for
client’s beneficiaries.
- No restriction on who funds
can be passed to – can be a
spouse, civil partner or
dependant or to a nominee or
successor.
- Beneficiaries can elect to
continue with flexi-access
drawdown, purchase a
survivor’s annuity or take the
funds as a lump sum.
- Income or lump sum received
by a beneficiary will be tax-
free on the death of the
member where the death
occurs before the age of 75

70

WHAT ARE DRAWBACKS OF THE DEATH BENEFITS UNDER CAPPED DRAWDOWN?

-Where the member’s death occurs
on or after their 75th birthday any
lump sum paid will be subject to tax
at the recipient’s marginal rate, and
income will be taxed as the
recipient’s pension income under
PAYE.
-Any lump sum paid will form part of
the beneficiary’s estate for IHT
purposes unless it is paid into a
suitable trust.

71

WHAT ARE BENEFITS OF THE DEATH BENEFITS UNDER FLEXI-ACCESS DRAWDOWN?

 Balance of the crystallised
fund remains available for
client’s beneficiaries.
 No restriction on who funds
can be passed to – can be a
spouse, civil partner or
dependant or to a nominee or
successor.
 Beneficiaries can elect to
continue with drawdown,
purchase a survivor’s annuity
or take the funds as a lump
sum.
 Income or lump sum received
by a beneficiary will be tax-
free on the death of the
member where the death
occurs before the age of 75.

72

WHAT ARE DRAWBACKS OF THE DEATH BENEFITS UNDER FLEXI-ACCESS DRAWDOWN?

- Where the member’s death occurs
on or after their 75th birthday any
lump sum paid will be subject to tax
at the recipient’s marginal rate , and
income will be taxed as the
recipient’s pension income under
PAYE.
- Any lump sum paid will form part of
the beneficiary’s estate for IHT
purposes unless it is paid into a
suitable trust

73

IHT Gifting

Don’t forget £3000 (£6000) annual allowance in gifting Calcs

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What is the process of setting up an LPA?
Completing document

Donors Statement
Certificate providers statement
Attorney’s statement

Complete other areas including restrictions, Replacement Attorneys

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What is the process for setting up an LPA?
Next step?

Send to the OPG with fee

Office of the Public Guardian
OPG can notify up to 5 people if directed by donor

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What happens next?

LPA for property and finance can be used within 10 weeks
LPA fr Health and Welfare can only be used once donor has lost capacity or started to lose capacity.

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There are nowadays broadly two kinds of living wills. What are they?

Advance decision. (Legally Binding)

Advance Statement (wishes that are not legally binding)

Neither of the above have to be in writing unless it is to do with a decision to refuse life sustaining treatment. In this case it must be in accordance with Mental Capcity Act 2005 and be : in writing, witnessed,signed, if decision could result in death then specific treatments need to be detailed and the phrase “even if life is at risk as a result” must be added.

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What are the 5 underpinning principles of the Mental Capacity Act 2005

1. A presumption of capacity – everyone has the right to make their own decisions
unless proved otherwise.
2. Individuals should be supported to make their own decisions.
3. Individuals’ decisions should be respected, however unwise or eccentric, if they are
made by someone who has capacity.
4. Anything done for someone who lacks capacity must be done in their best interests.
5. Least restrictive intervention – if an intervention is required for someone lacking
capacity, it should be the minimum or least restrictive option.

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Under the MCA what are the duties and responsibilities of Attorneys?

The MCA sets out principles that must be followed and best interests. It also places a specific
obligation on attorneys and anyone acting in a professional capacity to have regard to the Code
of Practice. Specifically, attorneys have a duty:
 of care;
 to carry out the donor’s instructions;
 not to take advantage of their position;
 of good faith;
 of confidentiality;
 not to delegate unless authorised to do so;
 comply with directions from the Court of Protection;
 not to disclaim without complying with the relevant guidance;
 keep accounts (financial decisions LPA only); and
 keep the donor’s property and money separate from their own (financial decisions LPA
only).

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What is the role of the Court of Protection?

the Court of Protection looks after the interests of those people who are unable
to make decisions for themselves. For example, people who lack capacity and have not
made alternative arrangements, such as an EPA or LPA.

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What are the 11 commonly held duties of trustees?

1) Act in good faith and uphold the trust
2) Joint responsibility
3) Take control of the trust property
4) A duty to take advice
5) Take reasonable care
6) Avoid conflicts of interest
7) Avoid a breach of trust
8) Not misuse confidential information
9) Duty to act unanimously
10) Maintain records and prepare accounts
11) Duty to distribute the Trust property

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Trustee Act 2000

What are the 5 areas of trust law covered?


1. the duty of care imposed upon trustees;
2. trustees' power of investment;
3. the power to appoint nominees and agents;
4. the power to acquire land; and
5. the power to receive remuneration for work done as a trustee.

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IN respect of the Trustee CAt 2000 what can be said about “Delegation of Responsibilities”

Delegation of responsibilities. Unless the trust document expressly allows it, it is not possible
to delegate the following:
 any function relating to whether or how assets of the trust should be distributed;
 any power to decide whether any fees or other payment due to be made out of the trust
funds should be made out of income or capital;
 any power to appoint a person to be a trustee of the trust; or
 any power which permits the trustees to delegate any of their functions or to appoint a
person to act as a nominee or custodian (sub-delegation).

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In respect of the Trustee Act 2000 what can be said about the “Duty to Invest”

Duty to invest. In general, trustees must act prudently in preserving the capital of the trust and
in balancing the interests of different beneficiaries. Without specific investment powers, trustees
can invest in the same range of investments as if they were ‘absolutely entitled’ to the assets
of the fund. In addition, a trustee must periodically review the investments of the trust and
consider whether, having regard to the standard investment criteria, they need to be varied.

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In respect of the Trustee Act 2000 what can be said about the “Standard Investment Criteria”

In this context, standard investment criteria are defined under the Act as:
 the suitability to the trust of the investments (both in relation to the suitability of the kind of
investment, and the suitability of the particular investment). For example, this could be
gilts, equities, art, property and this should take into account the type of trust (for example
discretionary or life interest, the type and age of beneficiaries); and
 the need for diversification of investments of the trust, in so far as is appropriate to the
circumstances of the trust.

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What are the two investment powered that exist within the Trustee Act 2000

Express Powers - Given specifically in the trust document


General Powers - Given to New trust under the Trustee act 2000

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Entrepreneurs relief
How long do Shares have to be held for and what %age of shares must be held to qualify for Entrepreneurs Relief

1 Year (not 2 years!!!)

5% shareholding