A truly pre-election Budget

Wendy Walton

Wendy Walton

No one who listened to the UK Chancellor’s 2015 Budget speech could be in any doubt that the General Election is approaching fast – the most eye-catching measures had a distinctly party-political feel.

The clearest example was perhaps the announcement of a review of the use of deeds of variation. The law currently allows a sensible and simple rearrangement of some legacies to help succession planning and this can have an impact on the inheritance tax due. Regularly reviewing client’s wills to ensure that they continue to achieve efficient division of family assets will become even more important if this safety-net is removed.

The announcements aimed at savers carried on the political theme. Although more flexible ISA rules — the Help-to-buy ISA and the proposed personal savings allowance are all welcome — it is perhaps the reduction in the pension lifetime allowance to GPB1million from 6 April 2016 that will have the most impact on our clients. The proposals on allowing pensioners to sell on their existing annuities also sound attractive in financial planning terms but will be fraught with potential risks for advisors who are not working in conjunction with expert IFAs.

Away from politics, the government has confirmed that it is not going ahead with its controversial ‘nil-rate band splitting’ proposals. Instead, it will introduce new rules to target avoidance through the use of multiple trusts and will also make the calculation of trust tax charges somewhat simpler. For example, the new rules will ignore same-day additions to relevant property trusts of GBP5,000 or less. It is also helpful that the grace period for applying the new rules for will trusts existing at 10 December 2014 has been extended by 12 months and that non-relevant property will be excluded from computations.budget case

There will be some minor changes to interest on overdue IHT to support the introduction of the new IHT digital service. From 3 December 2014, the existing IHT exemption for medals and decorations that are awarded for valour or gallantry will apply to all decorations and medals awarded to armed or emergency services personnel, and to Crown awards for achievements and service in public life. For deaths on or after 19 March 2014, the existing IHT exemption for members of the armed forces whose death is caused or hastened by injury while on active service is extended to members of the emergency services and humanitarian aid workers.

Technical changes to the entrepreneurs’ relief rules will be unwelcome for private equity firms as they could cause many management teams to lose tax relief on their existing shareholdings.

With only small increases (less than 2 per cent) in the income tax personal allowance on offer for 2016/17 and 2017/18 we may yet see the now-traditional rise in the tax take in the early years of the next Parliament. Whatever the financial weather, at least farmers will be able to average their profits over five years from April 2016 onwards, although one wonders how the new online tax accounts will cope with farm averaging.

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

STEP International News Digest wrap-up – February’s top stories

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Welcome to the wrap-up of the top ten most popular stories in the STEP Wealth Structuring News Digest throughout February 2015. In case you missed them, here are the worldwide industry news stories most viewed by our readers.

Geneva police raid HSBC: Authorities in Geneva have launched an inquiry into allegations of aggravated money laundering at HSBC Private Bank Suisse. The investigation began yesterday with a search of two of the bank’s Geneva offices, aimed at securing information on client accounts suspected of holding proceeds of crime.

HSBC Geneva accountholders were allowed to make ‘Liechtenstein disclosures’: The majority of UK-domiciled clients of HSBC Private Bank Geneva exposed by the so-called ‘Falciani leak’ were allowed to use the Liechtenstein Disclosure Facility to pay their back taxes and penalties, the chief executive of HM Revenue and Customs has revealed.

Tax authority defends actions over HSBC Swiss accountholders: The UK tax authority, HM Revenue and Customs, has issued a statement describing its enforcement measures against British holders of undeclared Swiss accounts at HSBC Private Bank. HMRC received a list of stolen HSBC client data in 2010 but stresses that the list was tainted by its illegal origin and therefore could not be used for prosecutions without corroborating evidence.

Labour government would force IFCs to set up public registers: The leader of the UK’s opposition party, Ed Miliband (of the Labour Party), has told Britain’s Crown Dependencies and Overseas Territories that they will be required to set up public registers of company beneficial ownership if Labour wins the general election in May. Otherwise, he said, he will push for them to be put on an international blacklist.

Clients of HSBC Geneva are publicly named: Various media outlets have now obtained the names of HSBC accountholders, some of which will be named in a TV programme to be shown tonight by the British Broadcasting Corporation (BBC). HSBC has released its fullest statement yet on the matter of leaked data of HSBC clients. Hervé Falciani, a former HSBC employee, stole a large amount of account data from the bank’s private client operation in Geneva in 2007.

Taxation of investment in commercial real estate: Withersworldwide has published a briefing on the taxation of non-UK investors in UK commercial property. Unlike the much-increased taxation of residential property, the commercial regime is relatively generous with low taxes on acquisitions and none on disposal, provided an opco/propco structure is used.

The year of the trust: Trusts are being set up at a phenomenal rate under Chinese trust law – 11 years after China’s trust legislation came into effect. Hao Wang TEP explains why.

Obama proposes easier route to renouncing citizenship: President Obama’s budget proposals, published earlier this month, include a plan to help some dual-nationality American expatriates to renounce their US citizenship without the fear of delinquent tax filings, penalties, the US exit tax, and the other consequences of being a covered expatriate. It is still not known whether it will become law.

Obama proposes tax on unrepatriated corporate profits: President Obama’s budget proposal today will include a one-time 14 per cent levy on the unrepatriated overseas profits of US corporations, plus a 19 per cent minimum tax on future foreign profits. Some USD2 trillion of corporate profits is thought to have been accumulated in foreign jurisdictions to avoid US tax.

Clients of HSBC Geneva are publicly named: Various media outlets have now obtained the names of HSBC accountholders, some of which will be named in a TV programme to be shown tonight by the British Broadcasting Corporation (BBC). HSBC has released its fullest statement yet on the matter of leaked data of HSBC clients. Hervé Falciani, a former HSBC employee, stole a large amount of account data from the bank’s private client operation in Geneva in 2007.

The STEP Industry News Digests provide a round-up of relevant industry news for trust and estate practitioners and other professionals in the wealth management sector. They provide brief summaries of topical news stories gathered from news providers internationally, providing a quick reference for busy practitioners to all the relevant news and issues. The News Digests also feature job listings from our recruitment site and list local STEP branch events and conferences. STEP’s digest services include twice weekly UK and Wealth Structuring (international) editions as well as a bi-weekly North America Digest focusing on the US, Canada and Mexico, and a Latin America Digest.

To subscribe to STEP’s digest services you will need to first register here: http://www.step.org/register

STEP UK News Digest wrap-up – February’s top stories

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Welcome to the wrap-up of the top ten most popular stories in STEP’s online UK Digests throughout January 2015 as clicked by our readers.

Film partnership investors force HMRC to suspend up-front payment notices: The England and Wales High Court has granted permission to UK film investors to challenge accelerated payment notices requiring them to pay disputed tax before any tribunal has made a ruling. The notices are now suspended until a judicial review hearing this summer, which will turn on whether HM Revenue and Customs’ new powers breach human rights law.

Film partnership loses at Appeal Court: The England and Wales Court of Appeal (EWCA) has unanimously rejected the Eclipse Film Partners No 35 tax-planning scheme. The partners claimed to be engaged in the trade of exploiting film rights and thus entitled to tax relief on their borrowings, but the EWCA decided that Eclipse was not trading.

New penalties for ‘serial avoiders’ and GAAR targets: HM Revenue and Customs is demanding even more powerful sanctions against tax avoidance. The new set of proposed measures is aimed especially at serial users of tax avoidance schemes, and creates specific penalties for schemes disallowed by the general anti-abuse rule

Use of GAAR against salary sacrifice schemes: HM Revenue and Customs has published a five-part guide on the application of the general anti-abuse rule (GAAR) to national insurance contributions. The GAAR has applied to NICs avoidance, such as salary sacrifice schemes, since March 2014.

MPs call for regulation of tax advisors: The House of Commons’ influential Public Accounts Committee has heavily criticised tax accountants PricewaterhouseCoopers for its promotion of tax avoidance schemes to large companies. The committee is calling for tighter regulation of tax advisors.

Tax relief gone wrong: Amanda Edwards TEP explains how a claim for loss on sale of land relief following a death can sometimes result in a larger tax bill.

Spousal maintenance should cease at husband’s retirement: A woman has lost her attempt to have her GBP33,200 annual maintenance award extended indefinitely into her ex-husband’s retirement. Upholding an earlier application by Ian Wright to have the sum reduced, the England and Wales Court of Appeal noted there was no good reason for his ex-wife not to support herself once her children reached the age of seven.

Law firm not liable for unfavourable distribution of clients’ funds: The England and Wales High Court has rejected a claim by two clients of Mishcon de Reya that the London law firm committed a breach of trust by releasing GBP2.5 million of their funds to a third party described by the judge as a ‘plausible chancer’. The clients hoped to hold Mishcon de Reya vicariously liable for the actions of one of its partners, whom they accused of conspiring with the third party.

Government plans to promote LPAs and will-making: The government is to hold a ‘life planning day’ next year to raise awareness of lasting powers of attorney (LPAs) and other life planning mechanisms including will-making and advance decisions.

Controversy over tax-saving deed of variation: Deeds of variation to minimise inheritance tax may come under scrutiny after the election. Labour Shadow Chancellor Ed Balls said during a TV interview he would ‘look at every area’ of tax planning if the Labour party wins the general election in May. He was being challenged over party leader Ed Miliband’s reported use of a deed of variation to amend his late father’s will in 1994 for tax mitigation reasons. This matter and tax-efficient party donations have come under heavy scrutiny.

The STEP Industry News Digests provide a round-up of relevant industry news for trust and estate practitioners and other professionals in the wealth management sector. They provide brief summaries of topical news stories gathered from news providers internationally, providing a quick reference for busy practitioners to all the relevant news and issues. The News Digests also feature job listings from our recruitment site and list local STEP branch events and conferences. STEP’s digest services include twice weekly UK and Wealth Structuring (international) editions as well as a bi-weekly North America Digest focusing on the US, Canada and Mexico, and a Latin America Digest.

To subscribe to STEP’s digest services you will need to first register here: http://www.step.org/register