Are you a Trust or Company Service Provider under Schedule 23?

UK Emily Deane TEPHMRC has confirmed today that firms that advise their clients on the establishment of offshore companies or trusts may receive pre-Notice letters this month.

The letter requests that advisors come forward and volunteer the following information to HMRC: name and address of the client, the entity details (name, jurisdiction, date of registration) and details of persons with beneficial ownership or interest in the entity. Following the issue of the pre-Notice letters the formal Notices will be issued under Schedule 23 of the UK Finance Act 2011 in February 2017.

STEP and the Law Society of England & Wales have been in protracted talks with HMRC about this issue over the last year. There are concerns about the potential breach of legal professional privilege, access difficulties to the relevant data and the definition of Trust or Company Service Providers (TCSPs).

HMRC has launched this initiative in order to gather information on the beneficial ownership of offshore companies and beneficial interest in offshore partnerships, trusts and other entities from UK-based TCSPs or their overseas subsidiaries. However, the definition of a TCSP in this connection is a little uncertain. The Money Laundering Regulations 2007 (MLR) incorporate the meaning of a TCSP within regulation 3:

’10) “Trust or company service provider” means a firm or sole practitioner who by way of business provides any of the following services to other persons—

(a) forming companies or other legal persons;

(b) acting, or arranging for another person to act—

      (i) as a director or secretary of a company;

      (ii) as a partner of a partnership; or

      (iii) in a similar position in relation to other legal persons;

(c) providing a registered office, business address, correspondence or administrative address or other related services for a company, partnership or any other legal person or arrangement;

(d) acting, or arranging for another person to act, as—

      (i) a trustee of an express trust or similar legal arrangement; or

      (ii) a nominee shareholder for a person other than a company whose securities are listed on a regulated market,

when providing such services.’

We believe that the most likely scenario whereby a UK practitioner will be classed as a TCSP is under section 10(d) when the UK practitioner arranges for another person to set up the entity offshore. It is not entirely clear whether this would  be a formal referral to another firm, involving a transaction fee, or whether an informal recommendation of an offshore firm is sufficient to trigger the classification as a TCSP.

Regulation 6 of the MLR sets out in detail which persons should be treated as though they are beneficial owners for the purpose of Anti-Money Laundering. Those categories are:

  • any individual who is entitled to a specified interest in at least 25 per cent of the capital of the trust property
  • any trust, other than one which is set up or operates entirely for the benefit of individuals, falling within sub-paragraph (a) the class of persons in whose main interest the trust is set up or operates
  • any individual who has control over the trust.

There is a GBP300 penalty for initial non-compliance, followed by daily penalties of up to GBP60 if the non-compliance continues. The TCSP will have 90 days to respond with the requisite information.

We understand that the Notices are only being sent to a select number of firms in February and HMRC has not issued any guidance at this time, therefore please contact emily.deane@step.org if you have any queries.

Emily Deane TEP is STEP Technical Counsel

New Year, new line-up

Patricia WassThe past few months have seen some big changes at STEP. While we have announced them all separately, I thought it might be helpful to provide a summary of what’s what.

First, it is a great honour and privilege to be writing this as the new worldwide Chair of STEP. I was elected in October and took office on 1 January 2017 for a one-year term. I have taken over from Edward Buckland TEP, who served as Chair for two years and dedicated enormous time and effort to leading the Society. He is going to be a hard act to follow.

I will be ably supported by my two Deputy Chairs, Simon Morgan TEP (Jersey) and Paul Seal TEP (England and Wales), who were elected in December 2016 and took office, like me, on 1 January, again for one-year terms.

Simon is one of five new Board members who joined myself and Paul as of 1 January: also joining us are William Ahern TEP (Hong Kong), Nancy Golding QC TEP (Canada), Dayra Berbey de Rojas TEP (Latin America), and David Russell QC TEP (Australia/Dubai), all of whom will serve a three-year term.

I very much look forward to working with all of my new colleagues, and I would like to pay tribute to the Directors who have just come off the STEP Board, having given tremendous service to the Society. Edward Buckland TEP, George Lyall TEP, Nick Jacob TEP, John Lawrence TEP and Angelo Venardos TEP have all acted tirelessly, and in the best interests of the Society, over many years.

Earlier this week we also made another important announcement, welcoming George Hodgson as STEP’s new Chief Executive, responsible for the overall management and delivery of the Society’s strategy and activities. George is well known to STEP members across the world, having been Deputy Chief Executive and served as Interim Chief Executive since the departure of David Harvey in June 2016. His appointment follows a rigorous recruitment process over the last six months of 2016.

We have also announced a number of other appointments over recent weeks and months, with new members Assad Abdullatif TEP (Africa & Arabia – replacing Tanya Cohen TEP), William Fowlis TEP (Canada – replacing John Poyser TEP), Ian Macdonald TEP (Scotland – replacing Paraic Madigan TEP),  Alan Milgate TEP (Caribbean – replacing John Lawrence TEP), Toby Crooks TEP (England & Wales – replacing Christopher Lintott TEP), Lorraine Wheeler TEP (Jersey – replacing Edward Buckland TEP) and Babetta von Albertini TEP (USA – replacing Larry Heller TEP) joining the wordwide Council as of 1 January 2017.

In addition, Rita Bhargava TEP has been elected Chair of STEP’s England and Wales Regional Committee; Cecile Vuillier TEP and Felicity Keller TEP were elected co-Chairs of the Swiss and Liechtenstein STEP Federation, and an election is currently underway for a new Chair of the Caribbean and Latin America Regional Committee.

I would like to congratulate everyone on their election and thank all those who have stepped down. I look forward to us all working together to take STEP forward. Last year saw us celebrate the first 25 years of STEP. Now the Society is moving into the next 25 years in its history we need to build on the firm foundations that have been laid for us by the founding fathers of STEP. We will take the very best from their experiences, and then continue down the right path for the Society, aspiring to be the leading worldwide professional body for those specialising in advising families across generations.

Patricia Wass TEP is worldwide Chair of STEP

The UK Client Notification Regulations – what is your obligation?

The UK Client Notification Regulations came into force on 30 September 2016 and the obligation for practitioners to notify any clients with offshore accounts and assets must be met by 31 August 2017.

The objective of the Regulations is to ensure that clients have advance warning that HMRC will soon begin to automatically receive data from over 100 jurisdictions relating to UK tax residents and their offshore accounts, in accordance with the UK’s Automatic Exchange of Information (AEOI) agreements.

Financial institutions that provide offshore advice (‘Specified Financial Institutions’ – SFIs) and practitioners who provide clients with advice or services relating to offshore income or assets (‘Specified Relevant Persons’ – SRPs) that is not disclosed in their clients’ tax returns are required to send each of their clients a Client Notification Letter advising them that their offshore tax information will be shared with HMRC under the Common Reporting Standard (CRS).

The notifications are only applicable to individuals and there is no obligation to notify companies or trusts.

There is a flat-rate penalty of GBP3,000 per SRP or SFI for not complying with the notification requirements.

SRP obligations

HMRC advises that if you are an SRP there are two options that you may wish to consider when identifying the relevant clients:

  1. To notify all of your clients for whom you have not submitted a return, or
  2. To specifically target the clients to whom you have provided offshore advice or services or referred offshore advice or services.

SFI obligations

If you are a financial institution that maintains an offshore account for an individual or have referred clients to a financial institution, wherever located, for the purpose of opening an offshore account you will need to send notifications. The two options in this connection are:

  1. Notify all account holders who have an account balance in excess of USD1 million in the UK, or
  2. Notify all account holders who are tax resident in the UK for whom the SFI maintains a financial account overseas, or who they refer to another financial institution to provide an overseas account.

Further information and guidance on what needs to be included with your notification letter is available here.

The HMRC-branded Client Notification Letter is available here.

We have been informed that the HMRC team will be happy to take queries in this connection at elinor.crockford@hmrc.gsi.gov.uk and mark.scott4@hmrc.gsi.gov.uk.

See my earlier Blog of 14 September 2016 for further information on the International Tax Compliance (Client Notification) Regulations.

Emily Deane TEP, STEP Technical Counsel

STEP England & Wales Biannual Statement – December 2016

Alex ElphinstonSix months ago we were all stunned at Brexit. Now we are also wondering how a Trump presidency will unfold and what further shocks national electorates may give across Europe, given the various elections ahead.

STEP is monitoring the situation closely and is in discussions with other relevant professional bodies as well as maintaining lines of communication with civil servants and the like to do all we can to ensure our and our clients’ interests are taken into account. We have certainly begun to see decisions being made by the EU Commission where the UK is no longer being consulted as previously – such as negotiations around the Fourth Anti-Money Laundering Directive.

As a professional body, STEP seeks to remain at the forefront and be the gold standard for practitioners dealing in trusts and estates and related private client work. As such we have an enviable reputation for the high-level discussions with government and other departments with which we are involved about a variety of matters, and proposed or actual changes, that may affect our work. This will be all the more important for us as practitioners as the new domicile rules and consequent changes to the tax regime come into play. The UK Practice and Technical Committees will be keeping a close eye on these issues.

A number of members have expressed concern over the delays and poor service being given by HMRC, and the Probate Registry in particular. These continue to be matters the committees and STEP team seek to address. Clearly there is only so much they can do, but please let us know of any improvements or deterioration. Actual case studies can be more powerful than general observations.

Sometimes it may seem as if STEP sends out far more surveys than other organisations. However we work in a world where ways of communicating, delivering training and news are constantly changing. We want to remain as a trusted organisation whose members are equally trusted for their integrity and advice. It is vital that we remain relevant for members in a crowded market. We also want to remain nimble and not create yet more layers of regulation for members. However we can only do that when members engage and flag up matters.

In November, STEP held a worldwide Symposium which looked at a number of issues including views on perceptions about offshore work and centres: a number of England and Wales members participated in a survey which forms the basis of the Offshore Perceptions research report. While this may not directly affect many members in this region, it does impact on STEP as an organisation and so on our region indirectly. We also looked at staffing across the regions and resourcing. We remain lean in terms of staffing, not least as a result of their commitment and dedication for which we are grateful.

One of the main points of discussion was presenting STEP and TEPs to the public. This has been a theme for some time, and a number of plans were unveiled on how STEP will address the issues and raise public awareness. You will be hearing more on this, as plans develop.

The importance of the branch network was recognised, alongside the need to avoid volunteer fatigue by assisting local committees and encouraging new members. If you are not involved in your local branch do consider this: it is a great way to make new friends, develop new business opportunities and build your profile within the industry.

In January, Rita Bhargava TEP takes over as regional chair. I have very much enjoyed my time in the role and wish Rita all the best. I would also like to take one final opportunity to thank the STEP staff for their fantastic support and assistance – not just the committee and myself, but all of us as members.

Finally may I wish you all a Happy Christmas and prosperous New Year.

Alex Elphinston TEP is Chair of STEP’s England and Wales Regional Committee

What next for offshore?

Offshore PerceptionsSTEP has published Offshore Perceptions, a major new piece of research looking at the current state of the offshore world. It paints a picture of a sector adapting rapidly to a new regulatory and institutional environment. It also confirms that measures designed to tackle abuse by a few, are actually having a major impact on costs for the legitimate clients who are the overwhelming majority of users of private client services both offshore and onshore.

The research, sponsored by First Names Group, is based on a survey of over 1,000 respondents, fairly evenly split between the offshore and onshore world, and with a very broad geographical reach.

Over three quarters of the offshore respondents to the survey report that compliance has become a burden to a ‘great’ or ‘large’ extent. Not surprisingly, this rising burden of compliance is driving up costs to the client and the report highlights a shift away from smaller clients and lower value work, both of which are no longer economically viable in the new cost environment.

Another major factor impacting the industry is the move by banks to de-risk their business. Half of all offshore respondents identified this as impacting their business to a ‘great’ or ‘large’ extent. Intriguingly, the de-risking issue was seen as important by even more onshore practitioners, with 60% telling us that it was having a ‘great’ or ‘large’ impact on the offshore worlds.

This mix of rising costs and the major banks withdrawing from many areas as they lower their risk appetite is, not surprisingly, expected to produce yet more consolidation in the offshore world, with most offshore respondents expecting the pace of consolidation to accelerate still further.

This inevitably raises fears about employment prospects, although there is still considerable optimism about business opportunities, not just in Asia and other traditional offshore markets but also, increasingly, from Africa. The survey confirms that family offices are also seen as an important growth area within the overall offshore environment.

Measures to improve transparency and tighten regulation have been one of the key global themes of the past few years, impacting offshore and onshore practitioners alike. The Offshore Perceptions report confirms that industry concerns have proved accurate in predicting that these measures, aimed at tackling abuse by a few, would result in sharply higher costs and less choice for the many.

The report also suggests, however, that the offshore world is busy adapting to the new environment and is far from gloomy. Over three quarters of offshore respondents feel optimistic (to a ‘great’, ‘large’ or ‘moderate’ extent) about the prospects for their jurisdiction and a broadly equivalent number are also optimistic about the prospects of their business sector. Many of the offshore centres have had to adapt to major challenges in the past. Generally they seem well placed to do so again.

George Hodgson is Interim Chief Executive of STEP

STEP puts CRS, transparency and public registers under the SIG spotlight

SIG Spotlight Session Nov 2016STEP hosted its annual Special Interest Group (SIG) Spotlight Sessions on 14 November in London, a day comprising six conference streams. SIGs provide opportunities for members to connect and advance their focused area of practice.

I attended the International Client SIG session, which focused on the needs of practitioners serving international clients with complex planning needs. The presentation was entitled ‘Moving Out, Moving In and Moving On: Key Movements for International Clients’. STEP members John Riches, William Ahern and Dr Angelo Venardos spoke on the topical issues surrounding CRS, transparency and public registers.

The Common Reporting Standard (CRS) continues to cause confusion in some key areas, and STEP is seeking clarification on a number of points surrounding settlors, beneficiaries, protectors, what constitutes a trust, controlling persons that are entities, charitable trusts and private trust companies. William Ahern and Dr Angelo Venardos discussed how CRS is being applied in Hong Kong and Singapore, and they touched upon the inconsistencies in the legislation compared to the UK, for example, anti-avoidance legislation, which is not as comprehensive as the UK’s.

Automatic exchange of tax information on a wide basis will unleash a deluge of confidential and highly sensitive personal financial information for transmission around the world. Differing jurisdictions may have differing issues to consider under these circumstances. Some jurisdictions may also need to consider if their data-protection laws are consistent with the commitments they have made with respect to CRS implementation. Conversely others may have to consider if the confidentiality obligations contained in their trust and banking laws are consistent with their CRS commitments.

The emergence of many corporate and non-corporate trust registers across the globe has caused privacy and compliancy concerns among most practitioners, although the recent non-constitutional ruling of the French trust register may have an influential outcome across Europe in that respect. We continue to wait and assess the new challenges as they arise in this upcoming new era of transparency.

However, the consistent theme across most jurisdictions is the urgent need to consider which jurisdictions are fit and proper to be granted access to an individual’s financial details.

About STEP’s Special Interest Groups

STEP’s SIGs focus on some of the more complex issues families face in planning for their future, including international families, protection of vulnerable people, family businesses and philanthropic giving.

The groups aim to benefit the practitioner, their area of specialisation, the clients they serve, and the industry at large. They are also open to professionals who are not STEP members.

The SIGs are:

• Business Families
• Charities
• Contentious Trust and Estates
• Cross-Border Estates
• International Client
• Mental Capacity
• Philanthropy Advisors

Please see this page for more details: www.step.org/sigs

 

Emily Deane TEP, STEP Technical Counsel

CRS and Charities October update

Emily Deane TEPHMRC hosted another Charities CRS working group on 12 October. The following issues were on the agenda for discussion:

Human Rights Guidance

  • HMRC has been collecting examples from the working group to increase transparency and address concerns where the exchange of information could put individuals at risk. Its new guidance has addressed some of these concerns.
  • It was pointed out that HMRC has highlighted the absolute rights within the Human Rights Act, but it does not refer to the qualified rights of individuals, and these should also be considered.

Discretionary Management

  • Some discretionary management scenarios were discussed by the group and it was suggested that HMRC provide examples of these in its guidance.

    HMRC noted that it was difficult to provide examples to cover every scenario, because the facts of each individual case will determine whether or not it falls within the scope of CRS. However, it agreed to continue to refine its guidance where possible.

  • HMRC confirmed that simply setting parameters for an investment manager (for example that he/she may only invest in ethical investments) does not mean that discretion is retained by charity trustees.

Communications

  • HMRC will be producing a webinar for charities setting out a basic introduction to CRS, which should be available before December.
  • HMRC was asked to produce a proforma for charities to use when completing the self-certification process. It advised that while this was not possible, some examples on the OECD automatic exchange portal might be useful instead.
  • HMRC has been hosting some CRS Charity events in conjunction with STEP. If you would like more information please contact Emily.Deane@step.org

STEP will continue to attend the periodic working group to discuss ongoing technical issues with HMRC. The next meeting is in January.

 

Emily Deane TEP, STEP Technical Counsel

STEP Annual Tax Conference looks at deemed domiciliaries

aeroplane and departure signSTEP hosted the last in this autumn’s series of Annual Tax Conferences on 21 October in London. Some outstanding STEP members spoke on topical matters including John Barnett TEP, Emma Chamberlain TEP, Robert Jamieson TEP, Edward Stone TEP, Paula Tallon and Chris Whitehouse TEP.

Emma Chamberlain provided a much needed update on deemed domiciliaries – the basic rules and transitional provisions. She raised some pertinent points on the rules of deemed UK domicile for long term UK residents, such as:

  • A taxpayer resident in the UK for 15 out of 20 years will be deemed domiciled for all tax purposes. The individual could also become deemed domiciled in a year when not UK resident, for example, if they moved abroad in their 16th year.
  • Split years count as years of UK residence and count even when the person is a minor.
  • If a taxpayer arrived here in 2002/3 or earlier and has been resident ever since, he or she will become deemed domiciled on 6 April 2017.
  • Once deemed domiciled a taxpayer must spend six tax years abroad to lose deemed domiciled status for income tax and capital gains tax purposes.

Emma went on to explain that the deemed domiciled status can be lost if the taxpayer leaves the UK by April 2018 and is non-resident for six consecutive years. The status will fall away at the start of 2024/25.

If that individual returned in May 2024 he or she would not be deemed domiciled again until 2039/40 after another 15 years of residence.

Emma suggested that the individual in question might be able to retain foreign domicile under general law, but nothing is certain at this stage. In any event, it seems very likely that domicile queries would be raised by HMRC and we strongly suggest that clients and advisors keep accurate domicile records.

STEP has recently submitted responses to HMRC’s reforms to the taxation of non-domiciles consultation paper dated 19 August 2016 which can be found on the STEP consultation tracker:

 

Emily Deane TEP, STEP Technical Counsel

Legacy giving: the role of the practitioner

charity jarOn 18 October, my colleague Beatriz Brockhurst (STEP News Editor) and I attended the launch of Legacy Giving and Behavioural Insights – a research report which examined how will writers discussed charitable giving with their clients.

Bridging the gap

The research illustrates the gap between clients expressing an interest in leaving charitable gifts (35 per cent) and those who actually do so (6 per cent). The event considered the ways in which practitioners can encourage greater giving by testators, drawing on evidence gathered from eight law firms and 31 solicitors, as well as 2,600 wills that were analysed during the two-year study.

Having the conversation

As a starting point, professionals should be talking about charitable legacy with their clients as part of the will preparation process.

But are clients comfortable with having this conversation? The study found that 69 per cent of clients generally deemed it acceptable for such a topic to be raised – and 46 per cent regarded it as the duty of the professional to mention it.

Different approaches

The research trialled three different ways of talking to clients about charitable legacies:

  1. Social norm framing – informing the client that charitable bequests was something many people did, and to ask if they would like to do the same. Legacy giving increased by 40 per cent for people making their first will.
  2. Emotional framing – asking the client to think about charities they or their families were passionate about, and/or had benefited from. This type of messaging was found to increase donations from clients both with and without children.
  3. Posthumous benefit framing – highlighting the good work that would result from a charitable bequest. This was regarded as the least acceptable and least effective form of messaging.

Tax incentives

The study also found that, in most cases, the tax advantage of legacy giving due to inheritance tax thresholds was not a motivating factor.

A TEP’s perspective

Jo Summers TEP, a member of STEP’s UK Practice Committee, offered a practitioner’s point of view. She emphasised the need to broach the subject of charitable legacy carefully and sensitively, not least to protect against being regarded as having exercised undue influence. Jo cited the initial client questionnaire as a good way to introduce the topic, with scope for a further conversation, if the client indicated this would be appropriate.

Practitioners also need to be aware that the charity the client would like to leave a donation to could change over time. As a practical solution, Jo suggested the will could contain a clause stating a percentage legacy, or a fixed sum to be split between charities chosen by the executors, with a letter of wishes to indicate where the money should be donated, depending on the client’s family circumstances at the time of their death.

Conclusion

The study concludes that will clients are generally open to having a conversation about charitable legacy. Practitioners can therefore play an important role in raising the level of charitable donations as legacy gifts.

The report offers interesting behavioural insights around legacy giving – I encourage you to read it:

 

Sean Smith, STEP Policy Manager

Making Tax Digital update

UK mapSTEP attended a meeting held by HMRC on 11 October to obtain feedback on its plan to make tax returns reportable on a quarterly basis, and completely digital.

HMRC’s stated objective is to improve the level of service for the public, reduce the cost to the taxpayer, and increase the revenue’s compliance and accuracy.

It says the new system will be the most digitally advanced in the world, and will enable a user to check their PAYE status, their State Pension forecast and any tax credits or allowances.

Apparently there are already close to seven million UK personal users, and HMRC is streaming webinars for basic users, as well as more complex tax users such as unincorporated businesses and landlords.

However, we learned during the meeting that many users with more convoluted businesses and multiple income streams, such as farmers, may find the new system challenging.

Although it seems unimaginable that someone would want to submit their tax return on their smart phone, HMRC points out the software will be mobile friendly, for those who do not have access to a computer or a laptop.

STEP has already flagged that the new system may not be accessible to less capable users, including elderly, or digitally excluded and vulnerable people.

Many may be unable to afford the extra burden of professional advice, a computer, laptop or smart phone, or indeed, the software required to comply.

HMRC recognises that there may be some transitional costs and potential cyber security risks, but believes customers will be pleased with the ‘real time’ system to keep taxes up to date, and notes there will be fewer inaccurate calculations.

HMRC’s webpage hosts a collection of consultation papers for all individual and business customers, agents, software developers, employers and all other organisations that need to provide tax information.

If you would like to provide feedback, please contact me at emily.deane@step.org by 3 November.

 

Emily Deane TEP, STEP Technical Counsel