STEP experts at European Parliamentary Hearing on protection of vulnerable adults

elderly man and younger carer
STEP expert speakers attended the European Parliamentary Hearing titled ‘The protection of vulnerable adults: a cross border perspective’ on 14 March in Brussels.

The Hearing was focused on the issue of protecting vulnerable adults across Member States (MS). Each MS has its own legal system in place in order to safeguard its senior citizens, however, with an increasing number of citizens moving to or visiting other MS, it is becoming difficult to ensure their protection.

The Public Hearing consisted of presentations by expert speakers, namely, Domenico Damascelli (Italy), Jean-Christophe Rega (France), STEP member Anneke Vrenegoor (Netherlands), Chairman of the STEP EU committee Richard Frimston TEP (UK) and Philippe Lortie (First Secretary of the Hague Conference on Private International Law).

MEP Bergeron was in support of an EU Regulation to oblige more MS to ratify the Hague Convention (HC) as well as modifying certain aspects of the HC. Whereas, Patrizia De Luca representing the Commission felt that imposing EU legislation would be premature.

There was also a difference of opinion over whether the issue was one of family law or of property law. If the issue is one of family law then unanimity is required which would make the adoption of an EU Regulation far more difficult to accomplish. However, the expert speakers unanimously agreed that it was a matter of property law, which affects families, but is not a family law matter.

This topical matter regarding potential EU legislation across MS is ongoing and STEP will be attending future meetings as it progresses.

STEP experts, Richard Frimston TEP and Kathleen Cunningham TEP will also be presenting a session on vulnerable adults, and the global legal approaches being adopted, at the STEP Global Congress in Amsterdam on 30 June – 1 July 2016. Register before 29 April to save up to EUR355.


Emily Deane TEP, STEP Technical Counsel

Probate application fees: our concerns

Emily DeaneAs many of you will have seen reported in the STEP UK News Digest and elsewhere, the Ministry of Justice recently issued a consultation paper with its proposals to reform application fees for grants of probate in England and Wales (see news story).

While STEP supports the Ministry of Justice’s proposal to modernise the courts and tribunals system and to transition from a paper system to an online system, we are very concerned that this investment is enabled at a steep cost to the public while incurring additional stress for bereaved families.

STEP has submitted a formal response to the Ministry of Justice, as well as meeting with representatives to express our concerns and to help find alternative solutions. For members’ information, we have included a brief summary of our main concerns below.

  • The proposed fees do not bear any relationship to the service provided by the probate court, and are simply proportionate to and rise with the value of the estate, to the disadvantage of families with estates valued over GBP300,000. The proposed fee therefore appears to be an ad valorem tax as opposed to an administration fee and bears no relation to the cost of processing the application. Why does the fee scale differ so markedly from, say, Land Registry application fees and the Court of Protection application fees, which involve a similar administration processes?
  • The government asserts that the benefit of the additional nil-rate band in 2017 will outweigh the increased probate fee, however there is no corresponding benefit or interplay with IHT rates and the probate fee is simply a significant and additional cost.
  • We are concerned that the payment of the fees could be problematic for law firms that would normally pay the fee up front on behalf of the executors. If a firm has several active probate applications on the go at the same time, it may not be financially viable to cover all probate application fees.
  • If it is not viable for the law firm to pay and if there are limited cash funds available in the deceased’s estate, then the executors will have to apply for a bridging loan to finance the payment using the estate as security. We anticipate that the financing will incur further delay, cost and administrative burden to the detriment of the executors and the beneficiaries. In practice it may also prove difficult to obtain bridging loans for this purpose due to money laundering requirements.
  • It may become a common scenario that the executors and beneficiaries are forced to sell the house in order to raise the requisite funds. A common example of a cash-poor estate would be a surviving pensioner who has nominal cash available to pay the fee, particularly if cash has already been depleted due to nursing home fees, and he or she may be forced to sell the home. There will also be farmers who are land rich but have very little cash and will be unable to produce the GBP20,000 or more from the estate. Children in their 20s and 30s may have been left the family home but will not have access to the GBP20,000-plus required in order to obtain the grant. Not to mention, of course, the charities that will be penalised by having to deduct a sizeable amount from the legacy.
  • This scenario will be a significant deterrent to a potential administrator if the estate is intestate and needs to be administered under the rules of intestacy.
  • People may be deterred from agreeing to act as an executor in the will-drafting stage or may revoke their appointed executorship post death.
  • We anticipate that if the proposals are enforced, the public will endeavour to arrange their assets in a manner that will avoid the need to obtain a grant of probate, for example by:
    • putting their assets into joint names, as joint tenants, with their intended beneficiary whether it be their spouse or children to mitigate the application fee (with the undesirable consequence of increasing the number of vulnerable people being persuaded to ‘gift’ their property to others in order to avoid the probate fee);
    • transferring assets out of the UK to remove them from their UK estate; or
    • ring-fencing property and assets in trusts and foundations.

This could result in a potentially huge loss to the government in probate fees, and more significantly, IHT tax revenues.

Emily Deane TEP, STEP Technical Counsel

Tax changes your clients may need to know by 6 April

Emily DeaneThe UK government will be making significant changes to both dividend tax relief and entrepreneurs’ relief effective from 6 April 2016. These changes were outlined by Robert Jamieson TEP at a STEP seminar in London on 22 February.

Dividend tax relief

The dividend tax credit will be replaced with a new tax-free dividend allowance of GBP5,000 per year for all taxpayers. The notional 10 per cent tax credit on dividends will be abolished. HM Treasury states in its Budget Report, ‘The current system of tax credits on dividends was designed over 40 years ago when corporation tax was more than 50 per cent and the total tax bill on dividends for some was more than 80 per cent. Since then, tax rates (including corporation tax) have fallen, leaving the dividend tax credit as an arcane and complex feature of the tax system.’

From April 2016 an individual will receive a tax-free allowance on dividend income of GBP5,000 and tax will only become payable on income above the allowance. An individual may also still apply personal reliefs that are applicable. It is worth noting that the GBP5,000 allowance is segregated from the GBP1,000 allowance that is available on savings income and is not applicable to dividends, which will also become effective on 6 April.

Dividend income above GBP5,000 will be taxed at 7.5 per cent (basic rate), 32.5 per cent (higher rate), and 38.1 per cent (additional rate). In addition, basic-rate tax payers who receive dividends of more than GBP5,001 will be required to complete a self-assessment return from 6 April 2016.

The impact of these changes will be keenly felt by small business owners. However, there is still some missing information, such as special rates, which is yet to be announced. This should become available after the Budget on 16 March 2016.

Entrepreneurs’ relief

Entrepreneurs’ relief (ER) changes are also anticipated on 6 April. ER was introduced in 2008 to incentivise people to set up and grow businesses by providing a reduced level of capital gains tax (CGT) on business disposals. ER is available to individuals, rather than companies and it would normally apply to a business person such as a sole trader, a business partner or a limited company shareholder in a trading business. An individual will pay only 10 per cent on the CGT arising from the sale of a qualifying business asset, instead of the usual 18 per cent or 28 per cent.

In order to claim the relief, the applicant must have held the qualifying business asset for at least one year. The relief would typically be applied to a disposal of shares or securities, but it can also be applied to the disposal of other business assets, except this may not be available on property or investment assets.

In December 2015, however, the government issued a policy paper proposing some significant changes to ER, and if these are not amended they will become effective from 6 April. As a result of these changes, ER will no longer be applicable to a shareholder who receives a distribution from a company in liquidation. According to the paper, this applies where the shareholder, ‘continues to be involved with the carrying on of a trade or activity that is similar to that of the trade or activity carried on by the wound up company in two years following the date of distribution.’

It is anticipated that thousands of entrepreneurs will liquidate their companies in the coming month before the April deadline. Liquidating a small business and establishing a new one should not be too disruptive; however the liquidation of a trading business could be more complex. Property developers, among other entrepreneurs, could therefore be seriously affected by the proposed changes.

We have also seen an increase in recent case law involving the application of ER, where the courts have been tested as to the definitions of an ‘employee’ and a ‘director’ for the purposes of the relief.

Useful links:

Emily Deane TEP, Technical Counsel at STEP

HMRC’s digital tax plans under fire

An elderly woman sitting in front of her laptop looking stressed and worried

STEP attended a meeting held by HMRC yesterday (3 March 2016) to obtain feedback from tax related governing bodies regarding its imminent – and mandatory – proposals to make tax returns completely digital.

We were informed that the objective is to modernise the tax system, improve the level of service for the public and reduce cost to the taxpayer.

The synopsis of the meeting was:

  • Tax returns will become completely digital – this will be compulsory
  • There will not be quarterly returns but ‘updates’ to HMRC on a quarterly basis
  • There will be a formal update announced at the Budget on 16 March 2016
  • The objective is to reduce time and costs for businesses and individuals
  • HMRC is aware that digital tools are not accessible to everyone and it is currently researching ways to deal with this sector
  • There will be four more consultations post Budget and the deadline is end of May.

David Gauke MP, Financial Secretary to the Treasury, stated in his December 2015 HMRC paper Making Tax Digital, ‘Individual and business taxpayers will no longer have to wait until the end of each tax year before knowing how much tax they should pay, avoiding any surprises and helping them to plan their financial affairs with more certainty. And taxpayers will be presented with a complete financial picture of their tax affairs in their digital account, [and will be] able to see and manage all of their liabilities and entitlements together for the first time.’

However, many of those present raised concerns over how the less capable sector, for example the elderly or disabled people, will be able to manage their records digitally, especially if they cannot afford a computer or smart phone, or are unable to use one. Many of these people will also be unlikely to be able to afford an accountant four times a year to assist them. HMRC confirmed that it is currently undergoing research in order to provide provisions for this sector to enable them to go digital; however they could not provide any examples of solutions.

The HMRC was also asked what information will be required to be provided four times a year, since the general suspicion is that it will amount to the same information that is required for a tax return. This would therefore amount to the same time and cost as a tax return, but four times a year. Once again, HMRC was unable to answer the question specifically, and promised information would follow ‘in due course’.

There may be an option to ‘pay as you go’ if people would rather make regular contributions to their annual tax return on a monthly or quarterly basis, to minimise the liability at the end of the year. We understand that this option, if available, will not be compulsory.

We will keep you updated on developments in due course.


Emily Deane TEP is Technical Counsel at STEP.

Are all countries ready for automatic information exchange?

Philip MarcoviciSTEP’s Global Congress, coming up in Amsterdam this summer, will be looking into a number of important and controversial issues, not least in the panel session I’m chairing on the second day.

Joining me will be the Rt Hon Clare Short, Chair of the Extractive Industries Transparency Initiative, Jeremy Carver CBE of Transparency International and Philip Kerfs, the Head of the International Co-operation Unit of the OECD.

We’ll be discussing whether all countries are ready for automatic information exchange – and many fear they are not. Corruption, misuse of tax information and many more issues are rife in more countries than any governmental organisation is able to admit.

Will automatic information exchange through the CRS (Common Reporting Standard) and other initiatives actually disadvantage those developing countries most in need of tax revenues? Will we see entrepreneurs making a rush for the exit in some countries, even though they are the ones most needed for their domestic economies? Have developed countries pushed their own tax enforcement agendas, without properly considering the economic consequences to those countries most in need?

We’ll be asking if the wealth management industry and legacy financial centres have themselves to blame for where we are. We will though, also be looking for solutions, and it may not be too late to consider and implement alternative approaches to tax compliance.

Should STEP and its members be more concerned about inequality of income and wealth and the consequences of backward-looking attempts to maintain secrecy in and around opaque trust and other structures?

Is the US, as a non-participant in CRS, the only country that is positioned to help – even though it may benefit its own financial services industry in the process? Have wealthy individuals and entities served by STEP members been too silent and self-absorbed, ignoring the needs of those in their communities?

Are professional services firms profiting from the complexity of FATCA and CRS more than the countries that need tax revenues to address urgent needs of those living in poverty? Is it true that tax compliance can overcome global poverty, and if that is true, how can we ensure that this is achieved?

We’ll be discussing real problems and identifying possible solutions. Do join us – it’s not a session to be missed.


Philip Marcovici TEP, Offices of Philip Marcovici, Hong Kong