UK: Financial & Tax Planning, Spring 2008 - Darling´s First Budget: The Verdict

Last Updated: 1 May 2008
Article by Paul Garwood


With the dust from the 2008 Budget settling, we look behind the headlines, including the repercussions for frequent business visitors to the UK and those who are non-UK domiciled.

In his first Budget, Chancellor Alistair Darling raised more than just his own famous eyebrows. While it did not prove to be the revenue-raising or green' budget many expected, the Government introduced a raft of further regulation and anti-avoidance measures, extending the complex UK tax web.

Much of the Budget speech focused at the micro-economic level, with relatively few references to detailed tax proposals. So it was something of a surprise to find HM Treasury issuing a record-breaking 107 Budget Notes, comprising 270 pages of detailed amendments, as the Chancellor sat down, trumping the previous 189-page record set by Gordon Brown in 2007.

Unfinished Business

The 2008 Budget was like the final act in a three-act play. Act One took place in March 2007 when Gordon Brown announced reductions in the basic rate of income tax and the standard rate of corporation tax.

Act Two was the October 2007 Pre-Budget Report (PBR) when Mr Darling announced major changes to the capital gains tax (CGT) regime, the ability to transfer the inheritance tax (IHT) nil-rate band between married couples, and finally, far-reaching changes to the residence and domicile regime.

The 107 Budget Notes represent Act Three. They contained a number of specific anti-avoidance proposals which follow the theme set over the past few years. The Disclosure of Tax Avoidance Schemes (DOTAS) rules introduced in 2004 mean that HM Revenue & Customs (HMRC) becomes aware of tax mitigation schemes very early on and can take action to close them down as swiftly as possible. We can expect similar specific anti-avoidance proposals to feature in future Budgets.

Residence Days In, Days Out

The Government has been eager to close a loophole relating to residence in, and visits to, the UK. The tax legislation states that an individual who is present in the UK for 183 or more days in a tax year should be regarded as resident in the UK for that year.

In addition to this statutory residence test, HMRC also applies a non-statutory test deeming individuals who have been present for more than 90 days a year, on average, over a four-year period, to be resident.

Until now there has been no statutory definition of what constitutes a day' of presence in the UK. For many years days of arrival in, and departure from, the UK were ignored. However, in 2006, in the Gaines-Cooper case, HMRC argued that where the individual concerned came to the UK on one day and left the next day, this should count as one day in the UK. This resulted in considerable confusion.

A Hard Day's Night

In the October 2007 PBR, the Chancellor announced his intention to introduce legislation so that both days of arrival and departure would be counted in the 183-day test. This caused considerable concern to those who make frequent business visits to the UK.

Following sustained lobbying, it has now been announced that a day will only be counted if the individual is in the UK at midnight. There will be exemptions for people who are genuinely in transit and do not engage in business activities while passing through the UK.

The midnight test' will be included in the statutory 183-day test. HMRC will also use the same test for the non-statutory 90-day test.

Counting The Cost

Over the past couple of years a succession of tax cases have reached the courts where HMRC has argued that an individual has remained resident in the UK for tax purposes. The new legislation will give the tax authorities additional tools to fight these cases and it is clear that the question of residence will continue to receive a great deal of attention.

Notwithstanding the new statutory rule for day-counting, much of the decision-making process for determining whether someone is resident is based on case law decided nearly 90 years ago. Other countries have much more straightforward and modern residence tests, but there are no signs that the UK Government intends to bring its rules into the 21st century.

Non-Domicile Changes

Domicile is a common law concept distinct from residence and based broadly on family history, long-term connections and future intentions. UK residents who are not domiciled in the UK (along with residents who are not ordinarily resident') can choose to be taxed either on their worldwide income on an arising' basis, or on their UK income on the arising basis and their foreign income on the remittance' basis.

The PBR included a number of changes to the taxation regime for foreign domiciliaries and draft legislation released on 18 January sets out the details. Following consultation, a number of welcome changes to the draft legislation have been announced.

A Long-Term Commitment

In his Budget speech the Chancellor made a commitment that the present Government will make no further changes to the tax regime for foreign domiciliaries in this parliament or the next.

That said, it is unfortunate that the introduction of the new regime has resulted in needless anxiety for foreign domiciliaries and has damaged the reputation of the UK's tax system.

The changes proposed in the draft legislation were so radical and the time given for foreign domiciliaries to review their affairs so short, that significant distress was caused. Many individuals have spent significant sums on professional advice and wrestled with decisions as to whether to wind up long-standing foreign trusts or even to leave the UK. With better planning and consultation, much of this unnecessary stress and expense could have been avoided.


A look at investment strategies for the non-UK domiciled individual.

Until 5 April 2008, non-domiciled UK tax residents had had a fairly easy ride when it came to UK income and CGT on their offshore income. But the changes announced in October 2007 have radically altered the tax planning landscape for such individuals.

The well-heeled can still qualify for immunity from UK taxes on their offshore income and gains, provided they pay their subscription fee of £30,000 per annum to UK plc. But what about those individuals for whom £30,000 is not justifiable relative to their offshore income? After all, they would prefer to avoid paying tax on an arising basis if at all possible.

Opening separate accounts and dividing income and capital will clearly still enable individuals to continue to keep their capital clean, but they will have to pay £30,000. So, are there any ways around this charge without triggering immediate tax liabilities on offshore income and gains?

The Offshore Bond

For people with only one source of funds from which they need to make remittances, one option is a non-qualifying policy of insurance executed with a non- UK resident insurance company known as an offshore bond.

Such investments are non income producing assets'. They have their own unique tax treatment, which allows investors to withdraw up to 5% of their original capital investment annually without immediately triggering any UK taxes on investment income and growth within the fund. Other tax advantages include the ability to assign the asset without triggering tax charges, and tax-efficient roll-up.

A Case In Point

An offshore bond may suit a non-UK domiciled but resident individual who has clean capital that he or she wants to invest overseas, while using some of it to fund living expenses in the UK.

Take a simple example of someone who has £1m in offshore investments. He is keen to invest in a basket of stock market-based funds, but needs to provide himself with the cash flow equivalent to £50,000 a year to fund his living expenses in the UK.

He could leave the funds in an offshore cash deposit and ensure that interest arising is not credited to the capital account. He could then remit clean capital, leaving the interest overseas. However, he would have to pay either £30,000 to retain the remittance basis, or £20,000, assuming a tax rate of 40% on income arising and based on a return of 5%.

Alternatively, to help him avoid both charges referred to above, he could invest the funds in an offshore bond, which in turn is invested in a portfolio of funds and/or cash. Each year he could draw down up to £50,000 of the original capital investment and remit it to the UK without triggering any tax on the growth within the bond. At some time in the future, he can either leave the UK or assign the bond to another person who is not taxable in the UK, and crystallise the gain free of UK taxes. But he would need to ensure that he was not liable to overseas taxes at that time.

Those Who Do Not Remit

Offshore bonds can also be used by those who have already accumulated offshore income and gains which are mixed with their offshore capital.

Under the new (and old) rules remittances from these mixed funds would trigger a charge to UK tax. Going forward, unless the £30,000 tax charge is paid, any future income will be taxed on an arising basis.

In such circumstances and assuming that no remittances will be made from this mixed fund it can be reinvested in an offshore bond. Income and gains within the bond will not be taxable going forward and the £30,000 tax charge can be avoided. Furthermore, withdrawals of up to 5% of the original amount invested can be made and provided this is not remitted it can be used to fund overseas expenses.


As individual circumstances vary, offshore bonds will not be appropriate for everyone. However, they should not be overlooked when planning for such individuals going forward.

Remember also that they are regulated investments and their charging structures are particularly complex so it is always wise to take expert advice when considering the options available.


The 2007 Budget led to a decline in EIS and VCT investments. But new incentives and benefits announced in the 2008 Budget look set to build an appetite for EIS.

After the seismic changes that altered the landscape for Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) investments in 2007, the venture capital industry was able to breathe a sigh of relief following the 2008 Budget. The increase in the amount on which an EIS investor may claim income tax relief, from £400,000 to £500,000 per tax year as of 6 April 2008, is likely to boost their appeal.

Unwelcome Restrictions

There were two main issues that arose for EIS in 2007. Firstly, the 2007 Budget included a new investment limit into an EIS/VCT qualifying company no more than £2m in a 12-month period. Combined with the reduction in the overall gross assets test of a company from £15m/£16m to £7m/£8m, the profile of potential investee companies was drastically altered. For Aim and large generalist managers in the VCT sector, this seriously constrained the profile of companies in which they are able to invest, but boosted the small cap experts.

Secondly, the October 2007 PBR included a new, single flat rate of CGT at 18%, together with the abolition of indexation and business asset taper relief (only 10% tax on a disposal of an unquoted or Aim-listed trading company held for no less than two years).

Welcome Relief

The Chancellor has subsequently announced the entrepreneurs' relief', effective from 6 April 2008. This applies to people who sell their businesses and also to directors or employees who own more than 5% of the shares in a trading company. The idea is that an entrepreneur will suffer only 10% tax on the first £1m profit from any assets sold, if held for at least one year.

The impact on EIS of the new 18% tax rate for CGT deferral purposes is likely to be positive in the short term. People who have already made gains may seek to wash through' their 40% CGT liabilities to 18% ones by making an EIS investment. And since an investor can claim CGT deferral on gains made up to three years prior to the date of the EIS investment, there could be a big increase in the number of investors looking to make this immediate 22% uplift.

Gentle Persuasion

The ability to defer gains will last beyond 5 April 2008. For this reason, many people may be planning to invest in the EIS over the next couple of years to take advantage of the 20% income tax relief available on EIS investments.

After 5 April 2008 any gains made will crystallise at 18% rather than 40%. So it seems likely that a reasonable number of investors will shirk away from making an EIS investment and pay the tax instead. However, there will also be a number of investors realising gains at 18% who were previously being taxed at 10% before 5 April 2008 so it is possible that these two groups could balance each other out.

A Brighter Future?

Finally, the overall cocktail' of tax benefits uniquely available through the EIS is still potent and should encourage investors looking for a variety of tax shelters: 20% initial income tax relief, CGT deferral, no tax on any uplift in value on EIS shares and exemption from inheritance tax after two years. Last, and hopefully least, loss relief can help cushion the blow if the investment does not go as well as anticipated.


With stock markets volatile, cash funds are finding wider appeal. And by going offshore, there are tax benefits too.

Effective investment management is not just about picking the right investments, but also using their tax treatment to enhance returns. Changes to tax legislation effective from 6 April 2008 have provided compelling reason for UK resident and domiciled taxpayers to hold their cash in an offshore fund.

Why Cash?

Even before the recent stock market volatility and banking crises, there were good reasons to use cash funds both to meet short-term needs and for longer-term asset allocation.

An actively managed cash fund offers investors the opportunity to earn enhanced interest rates by pooling money, increasing buying power' and accessing wholesale money markets. A fund structure provides ease of dealing daily prices and quick settlement (currently transaction plus one day) compared to traditional higher rate deposit accounts which have lock-in penalties or long notice periods in return for higher rates.

A cash fund spreads money among a number of different institutions to diversify risk. Smith & Williamson offers a conservatively run cash fund. While other funds offer higher rates of return, this is often at the expense of transparency these funds could be investing in collateralised debt obligations, structured investment vehicles, commercial paper or derivatives.

Why Offshore?

To take advantage of the recent change in legislation, the Smith & Williamson Cash Trust has recently changed domicile from London to Dublin. The reason for holding a Dublin-based cash fund is the different tax treatment.

An individual investing in a Dublin cash fund pays tax on the dividend as if it were a normal company dividend, i.e. at 32.5% (higher rate) or 10% (lower rate). A similar dividend from a UK cash fund is taxed on the individual as if it were interest income, i.e. at 40% (higher rate), or 20% (basic rate). Therefore, there is an advantage for UK higher and basic rate taxpayers investing in a Dublin-regulated cash fund, even though they do not receive the 10% dividend tax credit.

With effect from 6 April 2008, subject to certain conditions, dividend income of UK resident and domiciled individuals sourced from overseas is now treated like UK dividend income and is eligible for the dividend tax credit of 10%. It should be noted that this treatment only applies if the individual owns less than 10% of the shares.

This means that the effective tax rate for a UK resident receiving dividend income from a Dublin cash fund is 25% (higher rate) and 0% (lower rate). This is substantially more attractive than the rate applied to income from a UK cash fund, which is still treated as interest income.

While stock markets remain volatile, retail deposit rates continue to fall and inflation creeps up, a combination of cash fund advantages and beneficial tax treatment offer nervous investors an ideal opportunity to stay in cash.


World Markets

Pulling Out All The Stops

The turmoil in credit markets reached a crescendo in March, with the Fed-orchestrated rescue of Bear Stearns in the USA and shocking losses at UBS in Switzerland. Investor sentiment, however, had become so depressed, and cash balances so high that even a modest improvement in mood was sufficient to trigger a powerful short-term rally. Whether it can be sustained through the summer doldrums is open to question, given the clear signs of global economic slowdown, and IMF estimates of losses and write-downs from the credit crisis totalling $945bn. Investors can take comfort from the fact that these losses are spread across the world, rather than concentrated in a single country, as was the case in the Japanese crisis of the early 1990s. The leading central banks are also coordinating their approach to the crisis. Furthermore, private equity investors are now prepared to help refinance troubled US mortgage companies and to buy packages of distressed debt from financial institutions. On the other hand, analysts remain well behind the curve in their earnings forecasts, and we expect significant downgrades to 2008/09 forecasts in the months ahead, which have not been fully factored in by investors. If the current crisis takes longer to resolve, we may expect a few years of sub-trend economic growth ahead, and this would impact both earnings and investors' perception of what constitutes reasonable valuations. In addition, the need to recapitalise the global financial sector will act to suck liquidity from investors' portfolios, in marked contrast to 2005 to 2007, when cheap financing allowed companies to retire hundreds of billions of dollars of equity. We expect markets to remain volatile but rangebound, and with significant sector rotation.


How Deep A Recession?

Despite the emergency cut in US interest rates and the massive infusion of liquidity into the global financial system by the leading central banks, against the security of increasingly dubious collateral, the global credit crisis claimed a major victim in the US investment banking sector. Mortgage credit remains scarce and expensive and the regulator has reduced the surplus capital requirements of the two leading mortgage finance companies, Fannie Mae and Freddie Mac, allowing them to take on potentially another $200bn of mortgages. It will take time for this liquidity to filter through to higher demand and a more stable housing market. While housing starts and permits are now running at rates below completions, the level of sales remains weak, and the overhang of unoccupied homes is at record levels. The credit crisis is beginning to hit sectors beyond the housing market, including the infrastructure spending of the municipalities and townships.

The most worrying aspect of the recent economic data is the weakness of the employment component. The March non-farm payroll numbers showed an 80,000 fall, with a 67,000 downward revision to January and February data. The unemployment rate rose from 4.8% to 5.1%. Consumption is already under pressure from rising inflation; wholesale gasoline prices are 25% higher than in October. Not surprisingly, car sales in February fell by 10.2% yoy. If further evidence were needed that both rich and poor Americans are feeling the pinch, we need look no further than the falling revenues at top retailers such as Saks and Macy's and at the casinos in Las Vegas and Nevada. This in turn will lead to a slowdown in construction of hotels and leisure amenities, a strong driver of construction growth over the past two years.

While domestic demand is weak, exports are benefiting from the fall in the dollar, and this will cushion the economic downturn. We see further downside ahead in US equities, but despite dollar weakness, the returns to UK investors have exceeded those from other leading markets this year. Furthermore, as the US economy is the first to slow, it should be the first to recover& and perhaps the market with it.


Rose-Tinted Eyebrows

Signs of slowdown abound. QI construction activity was the lowest since 1996. Sentiment in the services sector fell to a 15 month low, and the KPMG/REC jobs survey showed a decline in permanent placements for the first time since May 2003, and a big shift to temporary and contract employment, suggesting firms are moving to a more flexible workforce.

The survey also shows a marked slowdown in wage demands, and as this coincides with rising food and energy prices, real household income will come under increasing pressure, and consumption will remain weak. House prices fell by 2.5% in March, and derivative contracts suggest prices could fall by 2% per annum for five years; stocks of unsold homes have shown the steepest rise since 1989, while mortgage transactions fell by 33% in February. By the same token, government tax revenue from employment, VAT and stamp duty on housing transactions will also be weak. While manufacturing output beat expectations, order books have contracted for three straight months and costs are under severe pressure.

The Budget measures were widely trailed, and the surprises were in the fine print. The Chancellor's numbers are however predicated on an overoptimistic view of global and UK economic growth. The Treasury forecasts a short, shallow global slowdown with a return to trend of 4.5% per annum by 2009. CEBR expects only 3.1% in both 2008 and 2009. While the Treasury has cut its UK growth forecast by 0.75% to 1.75-2.25% for this year and a recovery to 2.25-2.75% for 2009, CEBR is expecting 1.5% and 1.7% respectively. Even on the Chancellor's forecasts, borrowings will rise by £7bn in 2008/09 and a further £12bn over the following three years, and he will probably fail to keep debt/GDP below 40% in 2009/10. Overall, it will be a long hard grind for the economy this year and next, despite the latest cut in the base rate. Equity risks remain on the downside.


Profits Hit By Euro

The Eurozone seems to be splitting into two groups Germany, with strong manufacturing order books and rising employment, and Spain/Ireland/Italy, over-dependent on housing construction or increasingly uncompetitive and feeling the strain of a strong euro. Our hope that rising consumption in the Eurozone could cushion the slowdown in exports and construction activity is now in doubt, and we believe that analysts are far too optimistic about corporate profit forecasts. We remain negative on regional markets, even though in sterling terms they have not underperformed FTSE this year.

Far East

What Slowdown?

China has revised up its 2007 GDP growth rate from 11.4% to 11.9%, largely on the strength of the service sector, and Q1 Foreign Direct Investment rose by 61.3% yoy. Despite falling US prime rates, which should have benefited the HK property sector, the HK market suffered a sharp decline, reflecting rising fears of a US recession and the impact of some derivative trades on private investors. At the same time the domestic Chinese A-share market fell sharply.

There has been little new to say about the Japanese economy this quarter. Even though Q4 GDP growth was confirmed at 0.9%, well above expectations, the country remains heavily dependent on exports at a time when the yen has been soaring as the carry trade is unwinding and US demand is eroding. Wages are flat, bonuses are down and inflation is rising, putting pressure on consumption. The quality of government is abysmal, with the parties continuing to squabble over the appointment of a new head of the Bank of Japan, only a week before the present incumbent was due to leave his post, and at a time of turmoil in the global credit markets.

Even though the market has never been so cheap, and dividend yields exceed bond yields for only the third time in twenty years (each previous time the market staged an impressive rally), investors are at a loss as to what would catalyse buying interest. The fact that companies, with the support of government, have loaded themselves with poison pills to resist pressure from activist investors, is a further disincentive. The strength of the yen has cushioned the returns to UK investors in sterling terms, but it is hard to see how the Index can advance if the currency remains at current levels. The combination of bad news about Bear Stearns and a strong yen pushed the Topix Index below our long-term target of 1200 before a recovery. Following this period of weakness, we believe some good value is beginning to appear in both Japan and parts of Asia especially Taiwan and Korea but would continue to avoid the exporters.


Older homeowners are increasingly looking to release equity from their property to fund their retirement. But what is the best course of action?

As a means of raising income and/or capital, equity release has become an increasingly attractive option for older homeowners often usurping more traditional mortgages. The products are well-priced and regulated by the FSA and product innovations mean customers now have many options.

In 2007, demand for equity release increased by 9%, with the popularity of lump sums declining in favour of drawdown. The total number of loans rose from 27,000 to 30,000 and the amount of equity released leapt by 24% to almost £1.4bn. By contrast, the market share of home reversion plans fell slightly.

Many equity release plans have the advantage of offering a no negative equity guarantee', and a promise that the homeowner can stay in their home until they die or move into long-term care all of which means their home is not at risk.

An Age-Old Problem

Britain's pensioners are facing tougher times. Energy prices are going up, the cost of food is rising at its highest rate for 14 years, and council tax bills have increased by 92% in England since 1997 (based on a typical band D property). At the same time, the basic state pension currently £87.30 a week has failed to keep pace with inflation.

Most elderly people find there are few other options. They live on a fixed income and are unable to increase this to overcome financial difficulties. However, for many, the home is a huge untapped asset and, by using equity release, they can fund a more comfortable retirement.

Unlocking The Potential

Furthermore, equity release is not purely for retirement. People are also choosing to release the value in their homes for a multitude of other reasons whether it is supporting grandchildren through university, making home improvements or meeting the costs of divorce.

The costs of equity release can seem favourable too. This kind of mortgage debt is deducted from the gross estate when calculating IHT. So for an estate subject to IHT the total cost of the facility can be shared on a 60/40 basis by the beneficiaries and the Exchequer. Of course, the home owner must appreciate that equity release will reduce the value of their estate when it is passed on to beneficiaries.

Equity release is not the answer for everyone. However, it is an option that should be considered carefully the advantages and disadvantages should be weighed up before deciding the best course of action.


A pension is usually one of an individual's most valuable assets second only to their home. But in divorce settlements, dividing a pension can be a drawn-out process.

According to the Office for National Statistics, in 2006, there were 148,141 divorces in the UK. Yet according to Government estimates only around 10,000 pension sharing orders were implemented. Does this mean that only 7% of the divorcing population have pensions? Or do the remaining 93% have enough assets to trade-off against the value of these pensions. Or perhaps they used an order directing the pension trustees to make payments to an ex-spouse from the date the member draws on their pension benefits.

What is clear is that while pension funds are one of the most important and valuable assets in divorce cases, they are also one of the most complex. Legislation has been introduced in an effort to simplify the myriad tax regimes, yet they are still one of the most difficult assets to appraise when reaching a divorce settlement.

There are several ways that pensions can be handled in a divorce. First, they can be taken into account when assets are divided. Second, an earmarking order can be made, so that part of the pension becomes payable to the other party. The third option, pension sharing, is a method of reallocating pension benefits between divorcing parties to achieve a clean-break solution.

The Way Forward

So what is fair? Should the value of pension assets simply be divided or should the resulting income at retirement be considered and equalised between parties. There is no right or wrong answer and the individuals' circumstances must be taken into account.

Each pension scheme will have information that is specific to that arrangement and will impact on the final decision on how these benefits should be distributed. For example, does the scheme provide guaranteed benefits or is it contracted out of the state second pension. Furthermore, what are the charges applied by scheme trustees/administrators for the implementation of a sharing order?

Expert Advice

With this and many other factors to consider, it is important that individuals receive specialist advice. Divorce is a time when finances are stretched and the need for expert guidance is paramount. A well thought-out, comprehensive plan can be the difference between a getting a fair share and being left out in the cold.


Changes to the tax regime governing pensions caused a stir for savers with large funds, although the Government did allow two key protection measures. The question now is, if you have not already done so, whether to elect or not to elect?

On 6 April 2006, the Government replaced eight separate tax regimes governing UK pensions with just one. While the majority of savers enjoyed greater flexibility, a small number were disadvantaged by the new rules and, in particular, the statutory lifetime allowance (SLA).

The SLA is the limit an individual can accumulate in a pension fund without incurring a recovery charge. If it is exceeded, a charge of 55% of the excess is payable when taken as a lump sum, or 25% if it is used to provide additional taxable income. The SLA currently stands at £1.65m, increasing to £1.75m in 2009/10 and to £1.8m in 2010/11. After this, increases will be made at the discretion of the Treasury.

Fund Protection

To make sure individuals with large pension funds accrued before 6 April 2006 were not penalised by the new regime, the Government devised two methods of protecting funds from the recovery charge primary and enhanced protection.

Primary protection is available to individuals whose total funds were valued in excess of £1.5m on 5 April 2006. The individual is given a lifetime allowance enhancement factor (LAEF) according to the extent that his or her fund exceeds £1.5m. This is then used to calculate their personal lifetime allowance (PLA) on retirement. Funds in excess of the PLA are liable to a recovery charge. While primary protection does not provide complete protection from the recovery charge, the individual can continue to make pension contributions without losing it.

On the other hand, enhanced protection provides full protection and is available irrespective of the value of the investor's funds on 5 April 2006. However, it is lost if pension contributions are made, or defined benefits accrue, after 5 April 2006.

The Government has set a deadline of 5 April 2009 for transitional protection elections to be made. With this in mind, it is vital that those individuals with funds at or around the SLA take advice, if they have not already done so, on which form of protection, if any, would be best for them.

Taking Stock

When assessing whether a pension is likely to exceed the SLA on retirement it is vital to note the valuation methods for different forms of pension when testing against the SLA.

For instance, a pension already in payment on 5 April 2006 is multiplied by a factor of 25. As a result, a pension of £50,000 would be deemed to have utilised £1,250,000 of the SLA. An unvested defined benefit pension is given a notional fund value by multiplying it by 20 and then adding any tax-free cash at face value.

Income drawdown plans established before 6 April 2006 use the same factor of 25. However, this is applied to the maximum income available, rather than the income being drawn, so it can produce some unwelcome anomalies against the plan's actual fund value. For money purchase funds that were unvested on 5 April 2006, the fund value itself is tested against the SLA on a 1:1 basis.

The decision whether to elect for primary or enhanced protection or to retain no protection at all is far from clear cut. In fact, it is further complicated by the valuation factors outlined above.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.