Think you’re covered with a statutory notice? Watch out for a DWP claim

Emily Deane TEPUpdate 4 July 2018: STEP has liaised with the DWP on this technical issue. Please see its response below.

If you work in the probate field you will be very familiar with the process of submitting a statutory advertisement, (under the Trustee Act 1925 for England, or the Trustee Act 1958 in Northern Ireland) in The Gazette and a local newspaper, following the receipt of the grant of representation.

A statutory notice is a published advertisement giving notice of the personal representatives’ intention to distribute the deceased’s estate. The objective is to ensure that sufficient effort has been made to locate creditors, prior to distributing the estate to the beneficiaries, whilst safeguarding the executor or trustee from becoming personally liable from any unidentified creditors. If a notice is not submitted and a creditor subsequently makes a claim after the estate has been distributed, then the executor or trustee may become personally liable for any unidentified debts.

The notice gives creditors and anyone else who may have an ‘interest’ in the estate up to two months to make a claim via the personal representatives, although they do not affect the right of certain people to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975.

Once the notices have expired the personal representatives may then distribute the estate, knowing that they will not be personally liable should claims or debts of the deceased become payable. Therefore, it is prudent and good practice that no significant distributions should be made from the estate before the statutory notices have expired.

An exception for the DWP

However, not all advisors are aware that if you have already paid the beneficiaries their entitlements from the estate, and you subsequently receive a letter from the UK Department for Work & Pensions (DWP) about a claim, then you are not protected by the statutory notice.

In these circumstances you will need to contact the beneficiaries to explain that some money may need to be reimbursed to the DWP, and that they should return the money they have been given, pending the outcome of the enquiry. Clearly this scenario causes dissatisfaction for the beneficiaries, as well as delay and potential costs to the advisor.

Terry Moore TEP of Burstalls in Hull initially brought this to STEP’s attention. STEP’s UK Practice Committee has subsequently raised the lack of awareness around this issue and written to the DWP pointing out the difficulties it presents, and the length of time it often takes to receive a repayment request. STEP will report back in due course.

Update: 4 July 2018: The Department for Work and Pensions (DWP) has responded to STEP’s enquiry in relation to DWP claims and whether they are bound by statutory notices:

The DWP has confirmed that it does not have any authority to dismiss the protection afforded to executors and trustees by the Trustee Act 1925, section 27. If the DWP registers an interest in an estate outside of the expiry date stipulated in the statutory notice then the interest will be withdrawn, providing the executors or trustees produce evidence of the statutory notice, and the estate has already been distributed to the beneficiaries. All of these criteria have to apply for this to be the case. If the Estate has not been wholly distributed or not distributed at all despite the notice expiring then the DWP would still expect the Executor or Trustee to treat this as a potential claim on the Estate. This is due to the fact that the Executor/Trustee is now aware of this interest and has not yet distributed the Estate.

However, if the DWP registers an interest within the specified timescale, as a potential creditor of the estate, there is an expectation that executors and trustees accept this interest as a contingent liability and act accordingly until the liability has been established.  If a claim has not been quantified on the date the statutory notice expires, and the executors or trustees are being pressurised to distribute the estate to the beneficiaries, then there are some options available to the executors or trustees. These options may include obtaining the beneficiaries’ agreement to indemnify the personal representatives if the liability ever crystallises or to insure against the contingent liability. However, the DWP reinforces that it cannot advise executors or trustees how to administer the estate.

In addition, the DWP has advised that work is ongoing between DWP and HMRC aimed at streamlining the system.

STEP will continue to liaise with the DWP on these technical improvements.

Emily Deane TEP is STEP Technical Counsel

Top 10 FATCA/CRS reporting issues

Top 10 issuesWith reporting now underway in the UK for both FATCA (the US Foreign Account Tax Compliance Act) and the Common Reporting Standard (CRS), STEP has been liaising with HMRC on some of the more common reporting issues:

1. The financial institution (FI) has to re-register and is not able to view previous returns on the portal, because login details are unknown following staff changes.

Automatic Exchange of Information (AEOI) portal login details should be held securely and known only by those who need them. The FI should ensure that there is an appropriate procedure to maintain access to their portal. A pseudo email account might be an appropriate solution, providing the FI has robust security and data protection safeguards in place.

2. The FI misunderstands what constitutes an undocumented account.

HMRC has advised that FIs are wrongly reporting accounts as ‘undocumented’ when a self-certification requested from an account holder has not been completed. This has led to numerous accounts being erroneously reported with a GB resident country code. The definition of an undocumented account can be found at IEIM403100.

3. The FI makes a submission using the XML schema which is rejected due to inappropriate re-use of MessageRef, FIReturnRef and AccountRef.

The schema guidance gives comprehensive advice on use of references and can be found here.

4. The FI reports accounts where the account holder is not resident in a reportable jurisdiction.

Individuals who are not resident in a reportable jurisdiction (see IEIM402340) should not be reported. Some jurisdictions which have signed up to CRS are non-reciprocal, and some which have signed up are not yet ready to receive exchanges.

5. The FI reports accounts as being NPFFIs but resident country code is not US.

The term non-participating foreign financial institution (NPFFI) is for FATCA only, in respect of years up to 2016, and not applicable for CRS purposes. If used, the resident country code should be US.

6. The FI reports accounts that are excluded accounts and therefore non-reportable, such as registered pension schemes.

A full list of excluded accounts can be found at IEIM 401720.

7. The FI reports persons who are not reportable.

Under CRS, corporations with regularly traded stock and related entities are not reportable account holders, nor are governmental entities, international organisations, central banks or financial institutions. A list of exemptions to the term ‘specified US person’ under FATCA can be found in Article 1 (gg) of the UK-US Inter-Governmental Agreement (IGA).

8. The FI reports joint individual accounts as entity accounts.

A jointly-held individual account is not an entity account and the account information to be exchanged can be found at IEIM402140. However, partnerships, including general partnerships, are treated as entities, irrespective of their legal form (see IEIM400860).

9. The AEOI enquiry helpline is for financial institutions only.

HMRC requests that you don’t share details of the AEOI enquiry helpline with your account holders. This inundates its AEOI filing team and prevents it from being able to assist FIs with their reporting obligations.

10. The FI leaves filing to the last minute.

Filing submissions sufficiently in advance of the 31 May 2018 deadline allows FIs extra time to deal with any unexpected issues such as missing information, or inaccurate XML schema, that might lead to the submission being rejected.

STEP will continue to consult with HMRC on ongoing technical issues.

Emily Deane TEP is STEP Technical Counsel

The Gift Aid tax gap

Emily Deane TEPSTEP is working with HMRC on a Gift Aid working group set up to explore options to maximise the amount of Gift Aid that charities can claim on donations, together with ways of increasing customer understanding of the system and how it works. HMRC is also investigating opportunities to improve the way that Higher Rate Relief is claimed; and whether it works as intended, is future-proof and provides the relief in the best way possible.

HMRC began the process by instructing an external research company to look into charitable giving and the use of Gift Aid. Its specific objectives were to estimate the value of the Gift Aid tax gap and unclaimed Gift Aid, and develop an understanding of correct and incorrect behaviours among donors.

The report has found that 25 per cent of the value of donations made in the 12 months prior to interview did not have Gift Aid added to them where the donor was eligible, contributing up to GBP560 million to the value of unclaimed Gift Aid. This represents potential missed income for charities and is generated by eligible donors who only sometimes (30 per cent), or never (18 per cent), add Gift Aid to their donations. It is mostly driven by a lack of opportunity for donors to add Gift Aid, and to a lesser degree, by failing to understand what Gift Aid is, or where they are eligible to add it.

The report also finds that 8 per cent of the value of donations had Gift Aid incorrectly added to them by ineligible donors, generating a Gift Aid tax gap of up to GBP180 million. This is caused by ineligible donors who always (5 per cent) or sometimes (10 per cent) add Gift Aid, partly where they do not understand the relief, and partly where they misunderstand what it means to be a taxpayer. This has resulted in donors who are not taxpayers attempting to add Gift Aid, where they are not eligible to do so.

Better understanding of these issues would lead to a drop in Gift Aid claims among ineligible donors, and a rise in claims among eligible donors. It was recommended to provide information about (1) Gift Aid eligibility criteria (ie clarifying what it means to be a UK taxpayer, and that the donor must be one to add Gift Aid to their donation) at every opportunity, and (2) the benefits of Gift Aid at the point of donation; to help effect the change.

The report, Charitable giving and Gift Aid research, is published today, accompanied by a press release issued by HM Treasury and HMRC.

If you have any questions or suggestions please email STEP’s Technical Counsel – Emily.Deane@step.org.

Emily Deane TEP is STEP Technical Counsel

EU finance ministers approve changes to blacklist

Daniel NesbittWhen the European Union announced its blacklist of jurisdictions judged not to be cooperative on tax in December 2017 it granted several nations in the Caribbean extra time to change their tax systems to meet EU standards. That revised deadline has now passed and the EU’s finance ministers have approved a number of changes.

The following jurisdictions have been added to the blacklist:

• The Bahamas.
• The US Virgin Islands.
• Saint Kitts and Nevis.

As well as approving the additions ministers have removed Bahrain, the Marshall Islands and Saint Lucia from the list.

American Samoa, Guam, Namibia, Palau, Samoa and Trinidad and Tobago will remain on the blacklist.

A further four Caribbean jurisdictions have been placed on the grey-list of countries that have pledged to alter their practices:

• Anguilla.
• The British Virgin Islands.
• Dominica.
• Antigua and Barbuda.

One further jurisdiction, the Turks and Caicos Islands, has been given until 31 March 2018 to respond to the EU’s concerns.

STEP will continue to monitor the development of both the blacklist and the grey-list and will provide further updates when appropriate.

Daniel Nesbitt, Policy Executive, STEP 

HMRC announces trustees, NOT agents, will be liable for penalties

HMRCUpdate 23 March: HMRC has updated its guidance to clarify that if a penalty is payable for late registration, it will be the burden of the lead trustee and not the agent.

We received the following communication from HMRC on 5 March 2018:

‘On 8 December 2017, HMRC announced that while the 31 January 2018 deadline for making a Trust Registration Service (TRS) return would remain in place, we would not charge a penalty if the lead trustees failed to register their trust on the TRS before 31 January 2018 but no later than 5 March 2018.

HMRC will not automatically charge penalties for late TRS returns. Instead we will take a pragmatic and risk-based approach to charging penalties, particularly where it is clear that trustees have made every reasonable effort to meet their obligations under the regulations. We will also take into account that this is the first year in which trustees have had to meet the registration obligations.

While our information suggests that most TRS returns have been filed, if you have not yet completed your TRS registration(s), you should do so as soon as possible.

When penalties can be issued

Penalties can be charged for administrative offences relating to a relevant requirement.

These are:

• a requirement to register using the TRS by the due date of 31 January after the end of the tax year in which the trustees pay tax on trust assets or income and
• a requirement to notify any change of information by the due date of 31 January after the end of the tax year in which the trustees pay tax on trust assets or income.

The administrative offences penalty

HMRC will charge a fixed penalty to reflect the period of delay:
• Registration made up to three months from the due date – £100 penalty
• Registration made three to six months after the due date – £200 penalty
• Registration more than six months late – either 5% of the tax liability or £300 penalty, whichever is the greater sum.

There is currently no facility to notify HMRC of any change of information online and, as such, we will not charge penalties for a contravention of this requirement until the online function is available.

A penalty will not be payable if we are satisfied you took reasonable steps to comply with the regulations.

HMRC also has the power to apply a penalty for money laundering offences under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017/692.

These offences are more serious than administrative offences. HMRC will not bring these penalties in immediately. HMRC will consult on the structure of these penalties later this year, to ensure the penalty regime is fair and proportionate whilst cracking down on money laundering offences.’

It had been unclear, following this communication, whether the penalties would apply to the person dealing with the trust’s registration affairs, whether that be the lead trustee or the agent. HMRC has now confirmed that the lead trustee will become liable for the penalty, and not the agent.

HMRC has also confirmed to STEP that in scenarios where trusts have an income tax or CGT liability for previous years but are not registered for self-assessment then trustees do not need a Unique Tax Reference for this process, and HMRC recommends that the trustees submit an IHT100 as soon as possible.

Emily Deane TEP is STEP Technical Counsel