Reminder: UK IHT reporting changes from January 2022

Emily Dean is facing the camera. She has long dark hair and is wearing a white jacket.
Emily Deane TEP, STEP Technical Counsel

HM Revenue & Customs (HMRC) has amended the Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021 to exempt many estates from the need to submit an HMRC form. These estates can now use the probate/confirmation form instead:

  • For deaths on or after 1 January excepted estates should no longer complete an IHT205/C5/IHT217 or use IHT online. They can instead apply directly for probate or confirmation. The probate/confirmation forms and online journeys are now updated to capture the required IHT information, which is significantly reduced. This is in addition to the excepted estate changes meaning more estates should now qualify as excepted.
  • For deaths which have occurred prior to 1 January 2022, forms IHT 205/C5/IHT217 or IHT online should still be used, as the old excepted estate rules still apply to these estates.

The amendments apply to deaths occurring anywhere in the UK from 1 January 2022 and include:

  • raising the threshold gross value of an excepted estate from GBP1 million to GBP3 million;
  • raising the value threshold of an excepted estate’s chargeable trust property from GBP150,000 to GBP250,000, although the total amount of trust property including exempt amounts is limited to GBP1 million;
  • increasing the value limit in relation to specified lifetime transfers from GBP150,000 to GBP250,000;
  • amending the definition of ‘IHT threshold’ to include cases where some of the available threshold was used when the first of a married couple or civil partnership died and a claim is made for the unused percentage to be made available against the current estate (the transferable nil-rate band);
  • simplifying the ‘alternative information’ that is to be produced for both small estates and exempt estates; and
  • removing excepted status from estates of foreign persons where the deceased either owned indirect interests in UK residential property or made lifetime gifts of UK assets above GBP3,000 in the seven years before death, unless the estate is not liable for IHT.

The amended regulations also extend to 60 days the period during which HMRC can ask the personal representatives for additional information to show that the estate qualifies as excepted to 60 days. This brings the rules in England, Wales and Northern Ireland into line with Scotland’s regulations. At the same time, HM Courts and Tribunal Service (HMCTS) will be given a full month to transmit probate application information to HMRC.

HMCTS has informed users that updates to MyHMCTS will occur between 1 and 12 January 2022 and has requested that submissions of probate applications for estates impacted by the new regulations are avoided during that timeframe. STEP will keep members apprised of any further developments in due course.

Emily Deane TEP, STEP Technical Counsel

Thank you to all our volunteers on International Volunteer Day

Mark Walley

The UN organises International Volunteer Day on 5 December every year to recognise and promote the tireless work of volunteers across the globe. The theme this year is ‘Volunteer now for our common future’.

I am delighted that we are taking this opportunity to recognise the work of our volunteers here at STEP. Quite simply, STEP would not exist but for the efforts of our volunteers across the 30 years we have been around. The precious gift of time that volunteers give makes volunteering a superpower that energises the organisation.

From those first meetings back in 1991 through to an organisation today of around 22,000 members worldwide, our volunteers have generously given their time and expertise to help advance and grow STEP. It is truly something remarkable when you reflect on the growth and reach of STEP, with members in over 100 countries and branches or chapters in more than 50 of those.

The community that has been created through collaboration over the years, united by a shared focus on promoting integrity and continuous learning, is what makes STEP unique.

At any given time we have somewhere over 1,000 active volunteers contributing at local branch committee level through to Council, Board and its committees. While there is an organisational hierarchy of governance and reporting, the value and contribution of every volunteer is noteworthy – we simply wouldn’t have the impact that we do without everyone that is actively involved.

So I want to say a huge THANK YOU to every volunteer at STEP – both present and past. You have made us the organisation we are and bring huge diversity of thinking to what we do.

This year’s International Volunteers Day theme of ‘Volunteer now for our common future’ also feels particularly pertinent to STEP as we progress our strategic priorities. We are keen that everyone in our diverse membership feels welcome and able to contribute as we want to be a truly inclusive organisation.

We know from our member survey that membership and volunteering bring benefits, with 75 per cent believing that being part of this global network has helped progress their career. We also know that this means many of you would actively recommend STEP to others (leading to an enviable net promoter score of +54).

If you are not currently involved as a volunteer then now is the perfect time to attend a branch meeting (whether virtual or in person) and find out more.

Thank you again to all our volunteers – I salute you.

Mark Walley, CEO

Capital gains tax: changes are welcome but a full system overhaul is needed

The UK government announced five key technical and administrative changes to capital gains tax (CGT) on 30 November, also known as Tax Administration and Maintenance Day. The changes offer taxpayers some practical simplifications for taxpayers.

STEP is pleased to note that the government has addressed some of our recommendations but is disappointed that the existing system will not be overhauled, which is complex and difficult to navigate, often resulting in unintended consequences.

Context to these changes

STEP submitted a response to the UK Office of Tax Simplification’s second report call for evidence in relation to its CGT review, which was published on 14 July 2020.

The UK government announced on 30 November that it has accepted five recommendations from this report, which will offer some practical simplifications for taxpayers. This will make the system simpler and more efficient in the short term. The government has confirmed that the following administrative issues will be dealt with:

Five key changes:

1. HMRC should integrate the different ways of reporting and paying CGT into the Single Customer Account (SCA), making it a central hub for reporting and storing CGT data.

The government understands the case made to improve CGT and related services for customers. It will consider this recommendation as part of the delivery of the SCA. SCA service development is a long-term strategy for HMRC.

2. The government should consider extending the reporting and payment deadline for the UK property return to 60 days, or mandate estate agents or conveyancers to ensure that their clients are informed about these requirements.

The government announced at the Autumn Budget that the time limit for making a CGT return and associated payments on account when disposing of UK land and property has been extended from 30 to 60 days.

3. The government should extend the ‘no gain no loss’ window on separation to the later of: i) the end of the tax year at least two years after the separation event; or (ii) any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court or equivalent processes in Scotland.

The government agrees that the ‘no gain no loss’ window on separation and divorce should be extended and will consult on the detail over the course of the next year.

4. The government should expand the specific rollover relief rules which apply where land and buildings are acquired under compulsory purchase orders.

The government agrees that expanding rollover relief to cover reinvestment in the form of enhancing land already owned meets the spirit of the initial rationale of the relief and will consult on the detail in due course.

5. HMRC should improve their guidance in the following specific areas.

  • The UK property tax return
  • Lodgers and people working from home
  • When a debt is a debt on a security
  • When a loan to a business becomes irrecoverable
  • When business asset disposal relief could apply to farmers or others looking to retire over a period of time
  • Enterprise investment schemes
  • Land assembly arrangements
  • Flat management companies.

The government agrees with this recommendation. HMRC has already completed its review and expansion of the guidance on the UK property tax return, which will be published shortly and will proceed to the other areas of guidance listed in due course.

STEP will keep members apprised of any further developments in due course.

Emily Deane TEP, STEP Technical Counsel

FATF invites STEP to discuss potential revision of Recommendation 25

The Financial Action Task Force (FATF) is conducting a review of Recommendation 25, which covers the transparency and beneficial ownership of legal arrangements. The FATF’s objective is to improve Recommendation 25 and its Interpretive Note to meet its overall objective of preventing the misuse of legal arrangements for money laundering or terrorist financing.

The FATF recently invited STEP and other stakeholders to attend a private sector engagement forum in early November to understand their views on several key areas.

The forum participants discussed the definition of trusts and equivalent legal arrangements in common/civil law systems. The discussion focused on whether a common definition could be introduced in order to clarify where the law is unclear.

This section also covered the key challenges of understanding the nature and structure of common law express trusts and civil law legal arrangements.

The key challenges in understanding and verifying beneficial owners in the context of trusts, and how the concepts of ‘ownership’ and ‘control’ would apply to them, were also discussed. The types of information collected to establish beneficial ownership of trusts, and the challenges of collecting this information of foreign legal arrangements operating in countries without the necessary legal framework, were also covered.

The FATF also raised how it wished to establish to what degree identification of beneficial owners should be inherently part of a trustee’s duties and asked whether this should be an explicit obligation.

One of the major focuses of the forum was to examine some of the ways that trusts and other legal arrangements can purposely be used to disguise ownership and evade transparency. Discussion also focused on complex ownership structures and how they could be defined and identified more clearly. Challenges can arise in existing multi-layered structures where the legal entity being identified is lower down the chain of ownership and in some cases, verifying the beneficial ownership of the ultimate holding entity, can be unclear.

The FATF stated that it would welcome any written proposals with suggested amendments for Recommendation 25 until the end of the year. The next step would be a planned public consultation in Q3 2022: however, this will be open to change if necessary.

In parallel with this review of Recommendation 25, the FATF are also reviewing amendments to Recommendation 24, which focuses on the transparency and beneficial ownership of legal persons. The FATF is consulting on suggested amendments to Recommendation 24 and STEP is planning on responding.

Robert Carington is Policy Executive at STEP

Creating ‘Corporate Athletes’ with STEP’s Employer Partnership Programme

12 November 2021

What can professionals learn from the mindset of elite athletes? That was the theme of the recent webinar for STEP’s Employer Partnership Programme (EPP) members. We heard from former Olympian, Sandrine Mainville, of Canadian law firm Borden Ladner Gervais (BLG) and Sindy Peixoto, National Director, Talent Development for BLG about what it takes to be a ‘corporate athlete’. Sandrine won a bronze medal in the 2016 Olympics in the freestyle 4×100-metre relay with her teammates.

BLG runs a development programme that focuses on how to develop ‘corporate athletes’ by helping staff to sustain higher performance in the face of pressure and change. Sindy noted that to achieve long-term high performance, staff need to focus on the ‘performance pyramid’: emotions, body and spirit. 

A key theme was the need for recovery and to renew energy levels every day – not just at the weekend or on holiday. Sindy viewed sleep as ‘passive recovery’ and focused on the importance of regular concrete action to recover (e.g. stretching, plenty of fluids, good nutrition and regular exercise). She also stressed the importance of pushing beyond your comfort zone to improve.

Sindy went on to outline the traits of a champion:

  • self-confidence;
  • strong sense of motivation;
  • natural goal setting;
  • self-discipline;
  • sense of belonging;
  • ability to manage stress;
  • strong sense of focus; and
  • perfectionism.

Sandrine commented that self-discipline only works if we believe in what we are doing. She got up at 04:30 to train because she had clear goals. The key is to find the ‘why’ in what we do to make hard work become easy and natural.

The smallest gains can lead an Olympian to triumph but making those gains means putting in extra work every day for years. You also need a willingness to drive yourself harder at the end of a project, as Olympians do for their races. 

Sindy went on to discuss the importance of self-confidence, which is:

  • a feeling, not a thought;
  • based on past experience;
  • built from positive experience; and
  • comes from within.

If you don’t know how you will win/succeed then you won’t! Sandrine commented that building self-confidence is a journey that takes years and is linked to the quality of your work. You need to trust yourself and your abilities. If you give your best, and can say with confidence that you did so, then it’s not the end of the world if you don’t succeed – at least you tried! When you’re feeling down, take a rest and recover.

Sindy then presented strategies to build, maintain and regain confidence. Sindy and Sandrine both discussed the power of visualisation. This mental rehearsal, in which you engage all your senses, is a hugely effective way of improving your performance and reducing stress.

We then discussed motivation. To achieve our best, we need motivation and commitment. Motivation and self-discipline were nothing without a concrete goal. Sandrine strove for years to be picked for the 2016 Olympic team. Once she was, she had to establish a new goal very quickly. A chat from her coach, giving her examples and statistics, was a great boost for her motivation in achieving her new goal of winning an Olympic medal.   

Next, we looked at controlling what could be controlled and letting go of the rest. It’s critical to train yourself to manage your inner state and rebound from failure. Sindy noted that you must:

  • pay attention to your thoughts and feelings;
  • focus on the present; and
  • take action for change by setting some achievable goals to get started.

Finally, we looked at energy management. According to Sindy, we need to concentrate on the four key elements contained in the performance pyramid:

  1. Physical energy – fuelling the fire
  2. Emotional energy – transforming threat into challenge
  3. Mental energy – appropriate focus and realistic optimism
  4. Spiritual energy – ‘he who has a why to live’

Sindy noted that long hours take their toll. It’s important that we constantly feed our body, emotions, mind and spirit. We can underpin this self-care by setting up rituals: intentional, scheduled behaviours. It’s also important that we vary our activities – perhaps working for bursts of 90–120 minutes before taking a break (known as an ‘ultradian sprint’).

Self-care is not selfish: you are also doing it for your family and job. Distractions can increase the time we take to complete tasks by as much as 25 per cent. A lack of energy undermines productivity and focus.

Sandrine summed up with the following recommendations.

  • It’s important to maintain a good headspace. She recommends scheduling everything into our diaries that we want to do, not just meetings. Taking time for such activities gives her a clear shift in energy.
  • Failure is key to building resilience and emotional strength. A combination of hard work and learning from your failures leads you to success.
  • Learn to look at the big picture. Failure is part of a process, not the end of the world!
  • Remember that you are working for yourself before anything else. Look after yourself so that you can give of your best.

To find out more about becoming an Employer Partner, please email:[email protected]

Jenni Hutchinson, Head of Employer Partnerships

STEP Council Election Results 2021

We are delighted to publish the result of this year’s STEP Council elections. All candidates are thanked for standing in these elections, whether elected this time, or not elected, we appreciate the members who put themselves forward as nominees. We also thank those electoral college members who voted in the STEP Hong Kong and STEP Caribbean and Latin America Council constituency ballots, as well as all of the members who acted as supporters of nominations.

The successful candidates below take up their seats for the new session of Council on 1 January 2022, for a term of three years:

Rodney Luker TEP, STEP South Australia: re-elected uncontested.

Pamela Cross, TEP, STEP Ottawa. Pamela replaces Nancy Golding QC TEP, STEP Calgary, who retires from this Council seat on 31 December 2021.

Caribbean and Latin America
Theo Burrows TEP, STEP Bahamas, who was elected following a contested election. The current incumbent, Ivan Hooper TEP, STEP South America, will now retire on 31 December 2021.

Continental Europe, excluding Switzerland
Maurizio Cohen TEP, STEP Monaco: re-elected unopposed.

Hong Kong
Michael Olesnicky TEP, STEP Hong Kong, who was elected following a contested election. Michael takes up his seat following the retirement of current incumbent Jacqueline Loh TEP, STEP Hong Kong on 31 December 2021.

England and Wales – Midlands
Laura Banks TEP, STEP Birmingham: Laura is re-elected unopposed.

England and Wales – North East
Amanda Simmonds TEP, STEP Yorkshire: re-elected unopposed.

England & Wales – Wales & West
Denese Molyneux TEP, STEP West of England: re-elected unopposed.

Rupert Morris TEP, STEP Guernsey: re-elected following a contested election.

You can find out more about how STEP is looking at how best to ensure that equality, diversity and inclusion are part of our governance in this blog from STEP’s Chief Executive, Mark Walley. Further details about STEP’s Council and how the organisation is run are available via the main STEP website.

Zoe Willenbrock, Governance Manager

Modernising Lasting Powers of Attorney

The Ministry of Justice (MoJ) and the Office of the Public Guardian (OPG) jointly initiated a project to modernise the process of making and registering lasting powers of attorney (LPAs) in England and Wales in November 2020. STEP was invited to sit on the Modernising Lasting Powers of Attorney (MLPA) stakeholder working group and has attended various workshops over the past six months to help shape and develop the consultation.

The consultation deadline recently passed on 13 October and STEP has submitted a formal response. The consultation seeks views on seven specific proposals that the government is considering and a summary follows below of STEP’s response to each proposal.

Proposal one: ‘Role of witness‘, considers the role and value of witnesses and how to keep that value.

The OPG proposes to remove the need for a witness and/or replace the witness with new safeguards that perform the same function. STEP strongly opposes the suggestion that the protection provided by witnesses offers little or no value to the process. LPAs should retain their status and safeguard as a legal deed with the requisite formalities, and all signatures should be witnessed by independent witnesses.

Proposal two: ‘Role of application’, considers the role of applying to register an LPA and who can apply.

We agree that there are benefits to the proposal to digitally check the registrations, particularly in reducing the chance of delay and rejection. We also feel strongly that a paper version and application process should remain available to the elderly or vulnerable who have no internet access or IT facilities. We stress that even if ID verification online is technologically robust, there will be a small demographic, usually the more elderly, that do not have access to a computer or smartphone for verification.

Proposal three: ‘OPG remit’, considers the OPG’s remit and examines how to widen it so that it can verify people’s identity and stop or delay an LPA’s registration if it has concerns about it.

We agree that there need to be more advanced identity checks for donors, which would consequently improve safeguards and reduce the chance of identity fraud and theft. We suggest that the OPG should require suitable identification for all parties to the LPA including passport details and address confirmation. We also advise that indemnity bond insurance, subject to a minimum value set at a relatively low amount by the OPG, should be in place for all attorneys in case of malfeasance, fraud or similar wrongdoing.

Proposal four: ‘How to object’, considers how people can object to an LPA and how to simplify the current process so people can more easily understand where to send objections and how to do so.

We agree with the proposal that anyone should be able to object to an LPA at any time. However, we have suggested that this course of action should be aligned with a signposting and public awareness campaign detailing the limits of attorneys’ powers.

Proposal five: ‘When to object’, considers when people can object and examines at what point and for how long objections can be made before an LPA is registered.

We suggest that the time should be shortened between an LPA being sent for registration and it being placed on the register. We propose that a two-week waiting period plus one week for processing would be appropriate with a total four-week deadline for an online or paper return.

Proposal six: ‘Speed of service’, considers the speed of the LPA service and whether a dedicated faster service should be introduced for people who need an LPA urgently.

We believe that an urgent service would provide additional benefits. If the service is implemented we suggest that the specific reason for the urgency should be shown, with a limited tick-box menu, and the requisite proof should be required by the OPG. However, we reinforce that if the overall registration period is reduced (proposal five) then the number of cases where urgent service would be required would be very low.

Proposal seven: ‘Solicitor access to the service’, considers solicitors’ access to the service.

The online service is welcomed, subject to the retained safeguards. However, the current inability to save the online deed to the relevant client file is a significant disadvantage to this system, and this needs to be addressed before this procedure becomes compulsory for practitioners. We understand that this service will be accessible by other professionals (not just solicitors), such as estate planners, will writers, charities, etc., which is important.

We also recommend that dropdown menus are included in the online deeds, including precedent clauses with wording approved by the OPG and the relevant expert professional bodies, to cover matters such as continuing to be able to use or to set up an investment management arrangement with a discretionary fund manager. This would benefit all, including lay applicants. STEP has also reinforced that it is essential that any new online system is securely piloted within the industry before it is implemented.

STEP’s full response to the consultation can be found here. We will keep members apprised of any further developments in this area.

Emily Deane TEP Technical Counsel

EU announces Anti-Money Laundering (AML) Package 2021

Money Laundering and the efforts of governments to combat it and increase transparency and reporting of ownership globally continue to be a hot topic.

One body that has been looking at this area is the European Union, which is in the process of launching its new Anti-Money Laundering (AML) Package 2021.

This package was explored in detail at a recent webinar hosted by Anti-Money Laundering Europe (AME). The main objectives of the Package are to support:

  • Greater harmonisation of transposing EU AML and countering the funding of terrorism (CFT) law into national law,
  • Greater supervision at EU level, and
  • Better coordination of financial intelligence units (FIUs).

Paolo Panico TEP, Chair of STEP Europe, chaired the panel, which comprised:

  • Steve Ryan, Deputy Head of Unit D2, DG FISMA at the European Commission
  • Endija Springe, Policy Expert at the European Banking Authority (EBA), and
  • Anabela Santos, Technical Consultant at the Portuguese Chartered Accountants Association.

The panel discussed the European Commission’s new AML Package 2021, which delivers on the Commission’s action plan of 7 May and was put forward on 20 July for discussion by the European Parliament and Council. The EU’s intention is to achieve the Package through regulation, a new directive and a new AML authority.

These rules will include customer due diligence, harmonised beneficial ownership requirements and clear reporting obligations. There would be further alignment with the Financial Action Task Force (FATF), with the EU also creating a black list and grey list (as FATF does). A listing by FATF will also now trigger an EU listing and obligatory enhanced due diligence (EDD) and countermeasures proportionate to risks stemming from the relevant country.

The announcement of the Sixth Anti-Money Laundering Directive, ((EU) 2018/1673) or AMLD6, is another part of the Package. The Directive will have stronger mechanisms at national level and will:

  • Govern the tasks and powers of supervisors
  • Give public oversight over self-regulatory bodies
  • Have joint analysis of Financial Information Units (FIUs), and
  • Grant powers for beneficial ownership registers to carry out checks and issue sanctions.

The other part of the Package was the new AML authority (AMLA), which aims to transform the landscape of AML/CFT supervision in the EU and will come into force in 2024. It will do this by:

  • Establishing a single integrated system of AML supervision across the EU based on common supervisory methodologies
  • Directly supervising some of the most risky institutions, and
  • Supporting cooperation and joint analyses by national FIUs and facilitating communication among them.

It was reported that the new regulations and AMLD6 will only start to apply in 2026 as the AMLA needs to be up and running to prepare regulatory technical standards that will complete the single rule book.

The EBA gave its support for the new framework and proposal, and asked that the Commission try to avoid silos, balance greater harmonisation with a risk-based approach and ensure effective and efficient governance of the AMLA.

Delegates also heard that a lot of work needs to be done to create effective infrastructure and avoid it being seen as a burdensome bureaucracy.

Robert Carington is Policy Executive at STEP

Why inclusive elections lead to better outcomes

It is National Inclusion Week in the UK (27 September to 3 October).

Inclusion Week celebrates everyday inclusion in all its forms. This is the ninth year that organisations from across the globe have come together to celebrate, share and inspire inclusion practices.

Every year National Inclusion Week has a theme and in 2021 it is about unity. That feels like the perfect theme for an organisation such as STEP.

We have had a number of valuable discussions at our global Board and Council meetings about what STEP should do in relation to equality, diversity and inclusion (EDI). As a global professional body, comprising lawyers, accountants, financial advisors, trust officers and other practitioners that help families plan for their futures, we are, by our very nature, diverse. Our 22,000 members practise in around 100 countries and we have branches spread across more than 50 countries/territories. Our members advise in a broad range of practice areas.

Our work was prompted by some reflection among the Board that we had nothing to say in the aftermath of the murder of George Floyd because we had no demonstrable actions in place that could make a difference. We didn’t want to be ‘virtue signalling’. It was also clear from those discussions that there is a sense that taking action towards greater equality and inclusion is simply the right thing to do morally.

We noted our ‘Community’ value – ‘we respect each other and value diversity’. For those who prefer measurable drivers, the business case is strong. Organisations who actively engage and take action around EDI take better decisions and get better results.

Board and Council agreed that we should focus initial EDI work on making sure that STEP has the right mix of people to support good governance and performance through having a broad range of perspectives contributing to the decisions that we make.

As a global professional membership organisation, diversity is less the issue – we have members all over the globe. Nevertheless, as we think about inclusion do we have sufficient diversity actively engaged? An action plan is being developed by a Council working group to consider that question and how we might answer it.

As we head into STEP’s Council elections, there is the opportunity for all of our members to play their part in driving inclusion. Whether that is standing for election, exercising your vote or championing another to do the same – all these actions can help us to ensure we have great governance through a diverse set of views and opinions in our decision-making bodies.

Mark Walley, CEO

How will the new social care system in England work?

Emily Deane TEP

The Health and Social Care Levy Bill 2021-22 was introduced on 8 September 2021. [1] It will increase income tax and national insurance contributions (NIC) to raise an additional GBP11.4 billion to reform the funding of long-term health and social care over the next three years. The additional funding, which is being introduced as a new tax, is called the Health and Social Care Levy and will apply to the whole of the UK.

The policy will implement a cap of GBP86,000 on an individual’s lifetime care costs in England and raise the means-testing threshold for state contributions to the cost of care to GBP100,000. The GBP86,000 cap applies to personal care costs, rather than accommodation, in England and does not apply to Scotland, Wales and Northern Ireland, which have separate care regimes. This distinction between care costs and accommodation is new, and therefore not something that care homes have previously needed to include in their billing structures. It is not yet clear what impact this change will have.

The tax implementation
From April 2022, there will be a temporary 1.25 per cent increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for the 2022/23 tax year. Revenue raised will go directly to support the NHS and equivalent bodies across the UK.

From April 2023 onwards, the NIC rates will decrease back to 2021/22 tax year levels and be replaced by a new 1.25 per cent Health and Social Care Levy where the revenue will be ring-fenced to support UK health and social care bodies. From 2023, people over the state pension age will also be included in paying the Levy.

From April 2022, all rates of UK dividend tax will increase by 1.25 per cent. This change will be scored at the Budget and legislated for in the next Finance Bill.

The current system
At its stands at present an individual’s assets will be assessed by the local council to decide how much they should contribute towards their own care. This assessment is also known as the means test. The current situation is as follows:
• If you have more than GBP23,250, you have to fund your own care and there is no limit to how much you might need to pay during your lifetime.
• If you have between GBP14,250 and GBP23,250, your local council will contribute towards your care (until your assets are reduced to GBP14,250).
• If you have less than GBP14,250, your care will be fully funded.

The new system
• From October 2023 if you have assets worth less than GBP20,000 your local council will have to cover all of your care costs.
• If you have assets between GBP20,000 and GBP100,000 you will be expected to contribute to the cost of care, but will also be eligible for state support covering some of the costs. This support will be means tested.
• You will not have to pay more than GBP86,000 for care in your lifetime, which the government has stated is roughly equivalent to three years of care.

The new system intends that no one will have to pay more than GBP86,000 for care in their lifetime, which is progressive and certainly an improvement on the existing system. However, it will not help to tackle some of the existing shortfalls in care needs. There are also doubts about whether this level of funding will sufficiently cover the cost of care over three years particularly in parts of the country where it is significantly more expensive and any deficit in fees will probably need to be topped up.

The new policy has the potential to help people plan for their old age with more confidence. Limiting the lifetime contribution to care also means that some clients will be able to make provision for their children and family members with more certainty. In addition, the system will become fairer because people who pay for their own care will not have to pay more than a state funded individual for the same level of care. Historically, local councils have had different policies and procedures in place when it comes to assessing and providing care, which can cause financial distress and confusion. As the new system is developed, it would be helpful if national government could provide local councils with clearer and more consistent procedures to enhance the transparency of the universal care system.

There is always concern that individuals can be exploited when it comes to planning ahead for care costs since it is such an emotive and financially burdensome milestone in someone’s life. Unfortunately, some unscrupulous providers in the market promise clients that by setting up a trust they can exclude assets from means testing for care fees. This is not acceptable practice and breaches STEP’s Code of Professional Conduct.

If a local authority suspects that there has been a deliberate ‘deprivation of assets’ to avoid care fees then it may pursue penalties, insolvency proceedings, county court judgements and sometimes a criminal record. We hope that the intended new plans will provide sufficient clarity and transparency so that people no longer feel that they have to go to these desperate, and potentially criminal, lengths to secure their future in care or to avoid paying for it. More client information on this is available on our public-facing website here.

The government has mentioned in its proposals that it intends to encourage insurance companies to implement new products to help finance future social care costs, which could be valuable for families and practitioners in the estate planning process. We await further details from the government on all of these proposals and will provide updates on any developments.

Emily Deane TEP, STEP Technical Counsel