Confirmed and Unsaid: Looking at the 2014 Finance Bill

Wendy Walton

For private client/trust practitioners, the draft 2014 Finance Bill clauses published on 10 December 2013 contained no great surprises, and were mainly interesting for what they did not include. We will have to wait until early next year for details of the proposed capital gains tax (CGT) charge on the disposal of UK residential property by non-UK residents, and there will be further consultation on HMRC’s controversial proposal to split a settlor’s nil rate band between all the trusts he or she has created.

The confirmation that the new CGT charge for non-UK residents will not come into effect until April 2015 will allow affected individuals time to consider their position and take any appropriate action. The Autumn Statement wording, implying that only gains accruing from the effective date would be taxed, was also encouraging.

Various alternative suggestions have been made to HMRC in relation to the splitting of the nil rate band between trusts, so the exact fate of ‘Rysaffe’ planning, using multiple trusts, remains uncertain, but it is to be hoped that the chosen solution will avoid the administrative complexity that would have resulted from the original proposals.

The proposed inclusion of income that has been accumulated for at least five years (instead of only two years) in the amount subject to the ten yearly inheritance tax (IHT) charge is obviously an improvement on the original proposals. However, it still falls far short of the much longer accumulation period proposed by practitioners, and it will result in increased ten yearly charges, particularly as tax will be charged at the full rate, irrespective of how long the income had actually been accumulated.

The extension of the CGT uplift provisions on the death of a vulnerable beneficiary with effect from 5 December 2013, and the extension of the range of vulnerable beneficiary trusts that qualify for special income tax, CGT and IHT treatment from 6 April 2014 are, of course, welcomed.

The halving of the current 36 months final period of ownership CGT exemption on disposal of a main residence for property disposals after 6 April 2014 may mean that some individuals who left a property before 6 October 2012 and who have not yet sold it will have a larger chargeable gain than anticipated. There are also anti-forestalling measures so that the 18 month final period will also apply where a sale is agreed before 6 April 2014 but not completed until after 6 April 2015.

The introduction of a new transferable personal allowance of up to £1,000 between spouses and civil partners who are not higher rate taxpayers, while better than nothing, will be of very limited benefit, and will add another administrative chore to employers, with the transfer being given effect via PAYE codes in most cases.

Wendy Walton is the Chair of the STEP UK Technical Committee and is a Partner and Head of Private Client at BDO LLP.

Preserving the confidential nature of trusts

George Hodgson

I welcomed David Cameron’s recent letter to the President of the European Council, Herman Van Rumpoy, rejecting calls to include trusts in the public registries of beneficial owners that the UK is proposing for companies. In the letter the Prime Minister noted the need to ‘recognise the important differences between companies and trusts’ in this context.

Families are right to expect that the details of trusts should be kept confidential – it would be inappropriate to expose families’ financial plans to public scrutiny. Trusts are private matters for families, and just like other aspects of their finances, they have a right to expect that their details will remain confidential. Trustees quite rightly have a legal obligation to co-operate with any official inquiries regarding a trust, but this is very different to requiring families to make public their personal decisions on how best to safeguard future generations.

The risk of family trusts being used for money laundering is very low indeed. Moreover HMRC statistics confirm that in around a quarter of cases, trusts are used to help protect vulnerable family members. Publishing details of vulnerable beneficiaries would leave them seriously exposed to potential abuse, given the risk of such information falling into the wrong hands.

At STEP we fully support efforts to tackle tax evasion and money laundering, and note that the current arrangements where trustees must collect the information on trusts and, where relevant, make full reports to tax and other authorities, have generally been found to work well by independent international assessors.

Trustees quite rightly have a legal obligation to co-operate with any official inquiries regarding a trust, but this is very different to requiring families to make public their personal decisions on how best to safeguard future generations.

George Hodgson is Deputy Chief Executive of STEP.