OTS report supports STEP’s calls for simplification

Simon HodgesThe UK Office of Tax Simplification (OTS) has published its first report of its review into inheritance tax (IHT).  The report, in which STEP is widely quoted, finds that the process for completing IHT forms is too complex and old fashioned, and that too many people are having to fill them in unnecessarily.

The OTS is undertaking this two-part review of IHT in response to the request from the Chancellor of the Exchequer in January 2018. Since the review was announced, STEP has been in regular contact with the OTS. STEP’s response to the consultation was one of more than 3,500 to be submitted to the OTS, with the overwhelming majority seemingly negative about the IHT process.

The report concentrates on the concerns and administrative issues facing the public and professional advisors when confronted with the IHT process and related forms. It includes a number of positive recommendations, such as potentially reducing or removing the requirement to submit forms for smaller or simpler estates, especially where there is no tax to pay; having standardised requirements; and automating the system by bringing it online.

STEP has long argued that the IHT system is too complex, and that any moves to simplify the process, particularly through the implementation of a digital system, will be beneficial for bereaved families.

The Chancellor will now review the OTS recommendations before deciding whether to implement or ignore them. The key recommendation from the OTS, that ‘The government should implement a fully integrated digital system for inheritance tax, ideally including the ability to complete and submit a probate application,’ will be the mostly keenly watched, not least by STEP members.

As the report notes, inheritance tax and probate are closely linked, so it is timely that the OTS recommends that HMRC and HM Courts and Tribunals Service (HMCTS) liaise on streamlining the payment and probate process. As has been widely reported, legislation currently before the UK parliament would see a radical change to the probate fee system in England and Wales, and will mean an increase in fees for the vast majority of families. This approach has already been criticised in the House of Lords, and this latest OTS report further highlights the need to simplify the tax system surrounding death, rather than complicate it further.

We will keep members updated.

Simon Hodges is Director of Policy at STEP

The Informed Trustee: three months on

Julie HutchisonIt’s now three months since the launch of The Informed Trustee, STEP’s online course for charity trustees in England and Wales, Scotland and Northern Ireland. With Trustees’ Week being marked across the UK, it seems like a good moment to reflect on the story so far.

The Informed Trustee course was created as a practical response to two areas of concern. A series of reported events in charities brought the judgement and/or knowledge of charity trustees into question. The lack of diversity on charity boards also became evident. While the average age of a charity trustee is 61, figures show that 8,000 boards in England and Wales had an average age as high as 75. There’s also a gender imbalance of 64:36, with male trustees predominating.

Why online?

We chose an online training programme to remove a number of barriers limiting participation. Individuals anywhere can access course content, on whatever device is convenient for them, at whatever time of day. As the course is on-demand, attendees can dip in and out, approaching the course modules in whatever order they wish, over a 12-month period. We’re confident that this will broaden participation in trusteeship, by enabling trustees to fit their study around work and family commitments.

UK-wide

To ensure a truly UK-wide course, we sourced expert practitioners in charity law and finance from Scotland, Wales, Northern Ireland and England, to ensure both quality and equality of provision for candidates across the jurisdictions.

We’re delighted to see that over 50 individuals are taking the online course, and that 64 per cent are women, a reversal of the usual figures in England and Wales as detailed in the 2017 Taken on Trust report (PDF). In addition, several candidates are in their 30s.

We’ve also seen group enquiries from charities that are considering The Informed Trustee course for their whole board, or for new trustees as part of their induction. I look forward seeing how take-up continues to expand over its first year, contributing to the development of charity trustees, which in turn will support charities in continuing to deliver confidently for their beneficiaries.

Julie Hutchison TEP, Founding Editor, The Informed Trustee

Government changes E&W probate procedure without consultation

Emily Deane TEP

This Blog was updated on 26/11/2018 – for latest developments, please see the update at the end of the article below.

The government has announced amendments to the procedure for applying for probate in England and Wales, with less than a month’s notice. The Statutory Instrument (The Non-Contentious Probate (Amendment) Rules 2018) will come into force on 27 November 2018.

The Rules were laid as a negative instrument, meaning they don’t need the approval of Parliament and have already been signed into law by the relevant Minister. The instrument can be annulled by Parliament before implementation, but this is rare.

In brief the amended rules:

  1. allow personal online applications for probate to be made by an unrepresented applicant;
  1. enable all applications for probate to be verified by a statement of truth (instead of an oath) and without the will having to be marked (by the applicant, solicitor or probate practitioner);
  1. extend time limits in the caveat process, which give the person registering the caveat notice of any application for probate;
  1. allow caveat applications and standing searches (which give notice of grants being issued) to be made electronically;
  1. extend the powers of district probate registrars equivalent to those of district judges; and
  1. make further provision for the issue of directions (instructions to the parties) in relation to hearings.

The Probate Service has accepted online applications from personal applicants (individuals not represented by probate specialists) since earlier this year, with a view to making the system simpler and ‘easier to understand’.

There are concerns that the introduction of the online service may discourage individuals from using a probate specialist where it may be advisable to do so, for example where the estate is taxable, has foreign or complex components, or may be disputed.

The announcement comes at the same time as the Ministry of Justice’s proposal to increase the probate application fee with a banded fee structure depending on the value of the estate.

STEP strongly opposed this new system when it was proposed in 2016, on the basis that it is disproportionate to the service provided by the probate court. It is effectively a new tax on bereaved families. The government intends to introduce this measure without any proper debate via Statutory Instrument (see STEP blog: The death tax returns).

STEP will continue to follow developments in this area.

UPDATE 26/11/2018

HMCTS has advised that they will shortly provide further information with regard to the template of the statement of truth, but at present it is their intention only to make small changes to the current oath format to ensure that it fits with the new procedure and to make sure that practitioners do not need to change the format completely. They will soon provide template wording that must replace the jurat at the foot of the oath, as well as wording to account for the removal of the need to sign the will.

HMTCS have also provided guidance on the changes to the way caveat applications can be submitted. This is as follows.

Please note the following changes to Rule 44 regarding caveats:

  • Rules 44(2) (b) and 44 (3) (a) and (b): Caveats can now be entered and extended via email as well as post. If the caveat is to be entered electronically, the caveat form should be emailed to the DPR solicitors enquiries address. The email attaching the caveat form should ask for the fee to be taken from your PBA account. The fee must be paid before the caveat is entered/extended and currently there is no provision to pay a fee electronically other than by use of a PBA account. The caveat should be in the prescribed form i.e. form 3 (precedent form number 41 in Tristram & Cootes Probate Practice, 31st Edition). Caveats received after 4pm will be entered the following day.
  • Rules 44(6),(10) and (12): The period for entering an appearance/summons for directions following a warning to a caveat is now 14 days (calendar days including weekends and Bank Holidays).
  • Rule 44(13): District Probate Registrars can now deal with all summons to discontinue caveats following an appearance – whether by consent or not. The summons should be sent to the registry where the grant application is pending and if there is no application pending to the registry where the caveat was entered.
  • Rule 44(14): District Probate Registrars can now deal with applications to enter a further caveat entered by or on behalf of any caveator whose caveat is either in force or has ceased to have effect under R44(7) or (12) and under R45(4) and R46(3). These applications should be sent to the registry where the caveat was entered.
  • R45(3) and R46(3): Registrars can now deal with applications under these rules.
  • R43: Standing Searches can now be entered and extended via email as well as post. If the Standing Search is to be entered electronically, form PA1s should be emailed to the DPR with confirmation that the fee is to be taken by PBA. The fee must be paid before the Standing Search is entered/extended and currently there is no provision to pay a fee electronically other than by use of a PBA account.

In addition, please note that caveats received after 4pm will be deemed as having been received on the following day.

Emily Deane TEP is STEP Technical Counsel

The new gatekeepers of the financial system

Houses of Parliament, London

Update: STEP News 1 Nov: UK revises anti-organised crime strategy to target professional ‘facilitators’

Original blog:

Ben Wallace MP, UK Minister of State for Security at the Home Office, has called for more to be done to make lawyers and accountants who facilitate money laundering recognise their responsibilities.

As part of a House of Commons Treasury Committee evidence session (pdf) on Economic Crime, Simon Clarke MP asked whether lawyers and accountants were failing to appreciate the seriousness of money laundering. He noted that this may be because they haven’t been faced with the same level of fines as the banking sector has been.

In response Wallace said: ‘I absolutely agree with the point that the facilitators have not had the same focus on them as they should have done. They have a responsibility that they need to live up to and I would like to see them being put under more pressure to comply.’

These words mirror recent moves from the international community towards viewing practitioners such as lawyers and accountants as the new gatekeepers of the financial sector and an integral part of combatting money laundering. Publications such as the OECD’s Model Mandatory Disclosure Rules place a responsibility on advisors to report schemes that may have the effect of circumventing the Common Reporting Standard. The EU’s DAC6 (pdf) put similar requirements on intermediaries who design or promote tax-planning schemes.

Underlining the discussion in the same Treasury Committee session, Robert Buckland MP, the Solicitor General, called the creation of a new corporate criminal offence of failing to prevent economic crime a ‘very important priority’ for him.

Perhaps summing up the changing approach towards lawyers and accountants, Wallace said the following after he was asked if there should be more of a focus on the accountancy world when it came to enabling economic crime: ‘In this half of the year, my message to the facilitators is this: we have had a lot of focus on banks; my investigators are going to be focusing on you.’

STEP will continue to monitor relevant developments both in jurisdictions and with international bodies, as well as providing updates where appropriate.

Daniel Nesbitt, Policy Executive, STEP 

 

How will the UK budget affect STEP members?

Budget red boxUK Chancellor Philip Hammond delivered the final budget before the UK leaves the EU yesterday. Here are some of the key measures that may affect STEP members.

Individuals

Income tax: the personal allowance threshold, the rate at which people start paying income tax at 20 per cent, is to rise from GBP11,850 to GBP12,500 in April 2019. The higher rate income tax threshold, the point at which people start paying tax at 40 per cent, is to rise from GBP46,350 to GBP50,000 in April. Subsequently, the two rates will rise in line with inflation.

Entrepreneurs’ relief: changes to the qualifying terms. Disposals of shares only qualify where the shares entitle the holder to 5 per cent of any dividends and 5 per cent of assets on a winding up. In addition, for disposals after 6 April 2019, assets will need to have been held for a period of two years (rather than one year).

Principal private residence relief: the period of deemed occupation at the end of a period of ownership is being reduced from 18 months to nine months with a withdrawal of the rental relief element in all circumstances, except where the owner co-occupies with the tenant. The principle that the relief should apply to all properties was reaffirmed.

Capital gains tax: lettings relief is to be limited to where the owner is in shared accommodation.

Charities

Small trading tax exemptions for charities: raising the exemption upper limits from GBP5,000 and GBP50,000 to GBP8,000 and GBP80,000 respectively.

Gift aid donor benefits: simplifying the limits on benefits that charities can give to their donors to acknowledge donations.

Gift aid small donations scheme: increasing the small donations limit using cash or contactless payments from GBP20 to GBP30.

Retail gift aid scheme: relaxing the requirement to issue annual letters.  Charities will now only need to issue letters once every three years, rather than every year where a donor’s total donations in a given year are less than GBP20.

Trusts

The budget Red Book referred to the government’s trusts consultation, but the consultation date has not yet been confirmed:

3.15 Trusts consultation – As announced at Autumn Budget 2017, the government will publish a consultation on the taxation of trusts, to make the taxation of trusts simpler,
fairer and more transparent.

STEP has a trust consultation working group in place to review the consultation document as soon as it is published.

Companies

Individuals providing services via personal companies: the provisions that have applied in the public sector since April 2017 are being extended to private companies from April 2020. These provisions impose a duty on the ’engaging’ company to operate PAYE on amounts paid to the service company. These provisions will only be applied to large and medium-sized businesses.

STEP will continue to monitor the progress of the budget proposals and keep members updated.

Emily Deane TEP is STEP Technical Counsel

Addressing mental health in the workplace

10 oct 18 speakersSTEP marked World Mental Health Day on 10 October with The Capacity Conversation: Best Practice, an event hosted by the Employer Partnership team and the Mental Capacity Special Interest Group in London.

Simon Hardy TEP of Kingsley Napley explained that clients need to plan for loss of capacity, but many have not done so. While the UK has 12 million over-65s, and an estimated 850,000 dementia suffers, little more than 3 million LPAs and EPAs have been registered. When assessing someone’s capacity, the best way is to let them talk, he said, making sure that you find out their wishes, while showing that you care and are compassionate.

Laura Brayston and Claire Tomkins of Freeths, one of STEP’s Platinum Employer Partners, discussed their firm’s holistic approach to mental health at work. Freeths has instigated a top-down approach, with senior managers, who are supplied with e-learning resources, supporting initiatives to care for staff in an open and inclusive environment. The staff feel invested in, and cared about by their employer, they value mental health resources and support groups, and also appreciate treats such as snacks and drinks on Fridays.

Dan Walshe of the charity, Rethink Mental Illness, observed that mental health includes emotional, psychological and social wellbeing. It affects how we think, feel and act, and like physical health, can change over time. With an estimated one in four people affected, mental health costs employers up to GBP42 billion a year. Presenteeism (working while unwell and not fully functioning) costs from GBP18-26 billion a year, with absenteeism and staff turnover each costing GBP8 billion.

Six key recommendations for employers from Rethink Mental Illness:

  1. Produce, implement and communicate a mental health at work plan;
  2. Develop mental health awareness among employees;
  3. Encourage open conversations about mental health and the support available to those struggling;
  4. Provide good working conditions for employees;
  5. Promote effective people management; and
  6. Routinely monitor employee mental health and wellbeing.

Resources from Rethink Mental Illness:

To find out how other organisations are tackling mental health in the workplace read our STEP Journal article, Thriving at Work (pdf).

 

Laura Keith, Programme Manager – Employer Partnerships, STEP

Do UK money laundering regs extend to trusts in other jurisdictions?

departure board europeanSTEP’s Isle of Man branch has flagged potential issues raised by the UK Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (the Regulations) which give effect to the requirement of the EU Fourth Anti-Money Laundering Directive to have a central register of trusts, and reporting obligations on trustees.

The branch has queried whether the Regulations (Part 5, the trusts register) only apply to persons acting in the course of a business carried on by them in the UK (Regulation 8(1)). If this is the case, then Part 5 would not apply to trustees in the Isle of Man and elsewhere outside the UK.

As the Regulations are not part of the domestic law in jurisdictions outside the UK, it is unclear whether trustees in these jurisdictions have a ‘legal obligation’ to comply with Regulation 45. If there is a legal obligation for them to report, then conflicting data-protection issues may be generated under the domestic law.

In addition, the Regulations contain sanctions (fines and imprisonment) for non-compliance that HMRC, which manages the UK’s central register of trusts, may be able to enforce against trustees who do not comply.

STEP has raised these ambiguous points with HM Treasury (HMT), which laid the relevant Regulations, in order to gain some clarity. HMT has confirmed that its interpretation is that the definition of ‘non-UK trust’ within Part 5 of the Regulations extends to all express trusts that receive income from a source in the UK, or have assets in the UK on which they are liable to pay a relevant UK tax, regardless of whether they are established outside of the UK.

In these circumstances, HMT asserts that the trustees will indeed be required to comply with the record-keeping and, where relevant, registration requirements within Part 5 of the Regulations.

STEP will keep members informed on any further developments.

Emily Deane TEP is STEP Technical Counsel

What’s been happening at STEP in England and Wales?

Rita Bhargava TEPIt’s been a busy few months at STEP.

Our public-facing website advisingfamilies.org marked its first birthday on 22 May. Launched as part of a wider campaign to raise public awareness of STEP and TEPs, the site has clocked up over 130,000 visits, and over 700 followers on social media. Members and their firms have done much to contribute to the 74 articles posted, and we are always looking for more.

In recent months we launched a new global member recruitment campaign, Grow with STEP. It focuses on the benefits of STEP membership for your career and your business. The campaign follows the introduction in February of three globally consistent routes to membership: exam, essay and expertise. If you help spread the word and grow STEP’s network by referring a colleague, you will be entered into a draw to win an iPad.

GDPR had been on many people’s minds long before its 25 May introduction, and you’ll have received an email from STEP about your own data. STEP is working hard to ensure its systems and processes are robust and fully compliant.

GDPR has thrown up some interesting and complex question for practitioners, in particular regarding firms’ responsibilities to notify beneficiaries of trusts and wills about the information held on file. The Data Protection Act 2018, which recently passed through parliament, is also in the spotlight, as unlike its predecessors, it removes the legal advice exemption. STEP is looking to assemble a working group that can examine this and other issues in this area. If you are interested in being involved, please let us know at standards@step.org.

Many members have voiced their concern over HMRC’s online Trust Registration Service (TRS), which was introduced in late 2017 to implement the requirements of the EU Fourth Anti-Money Laundering Directive. All trusts and complex estates which generate a UK tax consequence are required to register, and then update information on an annual basis. Following initial teething problems, HMRC has confirmed it will take a ‘pragmatic and risk based approach to charging penalties’ for trust registrations made after the 5 March 2018 deadline, particularly where trustees or their agents have made reasonable efforts to meet their obligations under the regulations.

The European Council formally adopted the Fifth Anti-Money Laundering Directive in May, bringing in further changes to trust registration. 5MLD will extend the TRS to all UK express trusts and non-EU trusts that own UK real estate or have a business relationship with a UK Obliged Entity. The new Directive will require HMRC to share the trust data with Obliged Entities and anyone with a ‘legitimate interest’ – a term yet to be defined in full. You can read more about the latest developments with the TRS in an earlier STEP Blog post. STEP is liaising with HM Treasury on this, so watch out for further updates in the UK News Digest.

Finally we have a packed autumn ahead. The UK Tax, Trusts and Estates Conference series starts in Manchester on 4 September, moving to London on 21 September, York on 2 October and finishing in Bristol on 16 October. And for those of you looking to network with members from across the world, our third Global Congress is in Vancouver on 13-14 September.

Back in London, the Private Client Awards are being held later than usual on 7 November at the Park Plaza Westminster Bridge. We were delighted to receive more than 250 entries from 23 countries, and the finalists were announced on 6 August. Good luck to all of you who have entered, and don’t forget to book your place at the event before it sells out.

Rita Bhargava TEP, Chair, STEP England & Wales Regional Committee

The future of the Trust Registration Service

Emily Deane TEPUpdate: 4 September 2018

HMRC would like to notify members regarding a mismatch problem with the SA950 Trust and Estates Tax Return Guide and the SA900 2017/18. The original guidance notes indicated that untaxed interest could be declared at boxes 9.2 to 9.4 when in fact, if box 9.3 is populated with ‘0’, automatic capture of the return will fail. This has caused a backlog of rejected returns requiring manual capture and, therefore, significant delays. The correct action is that all untaxed interest should be declared at box 9.1 instead. The SA950 guidance notes were updated on 24th August to reflect this. HMRC’s Software Developers Support Team has been in touch with commercial software suppliers to alert them of the change.

The next issue of HMRC’s Agent Update due for publication 17 October 2018 will also highlight this issue.

Original blog:

STEP attended a meeting with HM Revenue & Customs (HMRC) and HM Treasury (HMT) last month to discuss the operation of the Trust Registration Service (TRS) and its progress, and the implementation of the EU’s Fifth Anti-Money Laundering Directive (5MLD). The following feedback was provided.

Operation of TRS

The TRS GOV.UK guidance should be published by the end of June 2018. The 22 November FAQs (hosted on STEP’s website) will not be updated in the meantime.

HMRC has allocated a 15-month timeframe to enhance the online functionality and make it more efficient for future service. It will be seeking volunteers to assist with piloting the new system shortly.

In situations where non-resident trustees have bought a UK property (and paid Stamp Duty Land Tax – SDLT), but have no UK income tax or capital gains, they should not be receiving demands for four years’ tax returns from HMRC. This will be addressed.

Named beneficiaries must be identified on the TRS, which is part of the EU Directive, and HMRC is constrained on this point.

HMRC is aware of the issue where the system requires the Unique Tax Reference (UTR), trust name or postcode to be matched to HMRC’s records, and access is being denied.

Delays to UTRs being received following registration of trusts and complex estates are being investigated.

HMRC will endeavour to produce more guidance on complex estates in the GOV.UK guidance.

The paper and online system will be amalgamated as soon as is practical.

HMRC is aware of the widespread dissatisfaction around the penalties, and has confirmed that it will take a soft approach this year.

HMRC introduced dummy variables to enable registration to proceed on the TRS, but will no longer accept them.

There will be no more trust registration deadline extensions in 2018.

HMRC is considering changing the March deadline to align with the Self-Assessment deadline, 31 March or 5 April.

The 28-day period to save and return data will be reviewed, and possibly extended.

The functionality is still not available to complete Q20 on the SA900, which should be left blank.

EU 5MLD

The EU’s 5MLD will extend the TRS to all UK express trusts and non-EU trusts that own UK real estate or have a business relationship with a UK Obliged Entity. The new Directive will require HMRC to share the trust data with Obliged Entities and anyone with a ‘legitimate interest’ – the latter term will be defined in full in due course. STEP is liaising with HMT on this.

HMT is planning to publish a policy consultation in winter 2018/19* that will last for eight weeks, followed by a consultation on draft legislation in spring 2019* that will last for four weeks.

5MLD is expected to come into law at EU level later in June 2018, with a transposition deadline of around December 2019, and an implementation deadline of around February 2020.

STEP will keep members apprised of any further developments.

*corrected date

Emily Deane TEP is STEP Technical Counsel

UK agrees company public registers for Overseas Territories

Daniel NesbittThe UK government has accepted an amendment to the Sanctions and Anti-Money Laundering Bill which requires the Overseas Territories to establish public registers showing the beneficial ownership of companies.

The amendment, introduced by Labour’s Margaret Hodge and backed by MPs from all the major parties, commits the government to assisting the Overseas Territories in setting up registers by 31 December 2020. If registers have not been established by the deadline, the UK will be required to legislate to impose them.

An amendment which would have extended similar provisions to the Crown Dependencies was not backed by the government and was subsequently withdrawn.

The developments come after a government amendment which would have only required public registers if the Financial Action Task Force recommended them, was not selected for debate by the Speaker.

Debates on the Bill are scheduled to finish on 1 May 2018, and following Royal Assent, it will become law.

STEP will continue to monitor the impact this amendment will have, and will provide further updates where necessary.

Daniel Nesbitt, Policy Executive, STEP