Probate fees – will common sense prevail?

George HodgsonThe government’s threat to radically increase probate fees next month (Probate fee rise ‘a new tax on bereaved families’) may be receding, following a meeting of the House of Commons Joint Committee on Statutory Instruments on 29 March.

Using some very welcome common sense, the committee raises the issue (para 1.12) that it is a constitutional principle that there should be ‘no taxation without the consent of Parliament’. This is something I suspect 99% of people will agree with.

It finds that the proposal from the Ministry of Justice (MoJ) is clearly a tax, not a fee, in every normal definition of the term, and should therefore be subject to full parliamentary scrutiny, rather than brought in via the back door through a Statutory Instrument.

The committee also finds (para 1.13) that ‘charges’ of the magnitude proposed by the MoJ were probably never envisaged when the original legislation the government was attempting to use here was approved. In other words, using this process is an abuse.

We would hope that this will provide an opportunity for the government to re-think its approach, which was criticised by over 90% of those responding to the consultation, and submit re-worked proposals for proper scrutiny by Parliament.

• Joint Committee on Statutory Instruments: Non-Contentious Probate Fees Order 2017

 

George Hodgson is Chief Executive of STEP

New probate fees: a guide for the public

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What is probate?

When someone dies, you need to get the legal right to deal with their property, money and possessions, and to do so you need a grant of representation, which is known as ‘probate’.

When is probate not needed?
Usually you won’t need to apply for probate if the estate does not include land, property or shares; if it is passing to a surviving spouse or civil partner because it was held in joint names (e.g. a joint bank account, or a home owned as ‘joint tenants’); or if the estate is valued at less than £15,000.

Each financial institution has its own rules, however, and may still require you to apply for a grant even if the value is under this threshold.

What is happening to probate fees?
In February 2017, the government announced that probate fees in England and Wales will change in May 2017 to a banded system, where fees increase with the value of the estate, replacing the current flat fees of £155 if you apply through a solicitor, or £215 for a personal application.

The proposal to link probate fees to the value of the estate was published in February 2016 and attracted overwhelming opposition. Nonetheless, the new system has been brought in, and was confirmed in the March 2017 Budget.

The fee structure as of May will therefore be as follows:

Value of Estate New Fee % Change (from £215)
Up to £5,000 £0   0%
£5,000 – £50,000 £0 -100%
£50,001 – £300,000  £300  +40%
£300,001 – £500,000  £1,000 +365%
£500,001 – £1m £4,000 +1,760%
£1m – £1.6m £8,000 +3,621%
£1.6m – £2m £12,000 +5,481%
Over £2m £20,000 +9,202%

When in May does the change kick in?
The government has not yet confirmed the exact date in May from which these changes will apply. The new fees will apply to all applications received by the probate service on or after this still-to-be-announced date in May, irrespective of the date of death. Probate registries have said that any application received within working hours of the Probate Registry before the implementation date will be charged the current fee.

What can you do?
Applying for probate takes time as you need to gather a number of documents and all the relevant information regarding the value of the estate to ensure any inheritance tax obligations are correctly accounted for. If you are very recently bereaved it may therefore be very difficult to submit a full application for probate before the new fees are implemented.

If, however, you have already started the process, you may want to try and get your probate application in before May to ensure you pay the current flat fee.

If you are applying for probate through a solicitor, your solicitor will be aware of the situation and will be doing everything they can to try to get your probate application lodged with the probate registry before the new fee structure applies.

If you are making a personal application, you should be aware of a few important points:

  • In cases where you are required to submit an IHT400 or any document for assessment by HMRC for inheritance tax purposes, many probate registries have said that it is possible for you to submit the appropriate forms to both HMRC and HMCTS Probate simultaneously. They will not issue your grant until the approved IHT421 is received, but the probate registry will mark your application as lodged. To assist them in not raising this as a query, they have advised that you clearly mark on your application that the inheritance tax document will follow after assessment.
  • A ‘full application’ for probate purposes, and therefore to qualify for the appropriate fee, must include:
    • Full oath sworn by all deponents and commissioners
    • An original will and codicil (where appropriate) endorsed by all commissioners and deponents
    • The appropriate number of correct copy wills and codicils
    • An Inland Revenue account (with the exception of IHT400s/421s where assessment is ongoing and it has been noted on the covering letter that it will follow)
    • All associated documents including any affidavit evidence required at the time of submission, renunciations, powers of attorney
    • The appropriate fee.

    Upon receipt of an application in this form prior to commencement then the existing fee will be charged.

  • If the estate you are dealing with is asset rich but cash poor, the probate registries have said that executors will be able to apply to the Probate Service to access a particular asset for the sole purpose of paying the fee. Instalment options will not be available.

Where can you get more information?
The government has not published any public information on this issue beyond the consultation documents:

In the absence of public-facing information from the government, we will continue to publish updates on this, as and when they are announced, here on the STEP Blog.

If you have any specific questions about your probate application please contact your local probate registry.

George Hodgson is Chief Executive of STEP

European Data Protection Supervisor voices privacy concerns over 4AMLD

George HodgsonThe European Data Protection Supervisor’s Opinion on proposed amends to the Fourth EU Anti-Money Laundering Directive (4AMLD) shines a welcome spotlight on data protection implications and the ‘significant and unnecessary risks to an individual’s right to privacy’.

The Opinion, published on 2 February 2017, raises questions as to whether or not the proposed collection of personal data is proportionate to the fight against money laundering and terrorism financing and scrutinises the access to beneficial ownership information and the significant and unnecessary risks that this might cause an individual who has a right to privacy and data protection.

STEP has been heavily engaged with Brussels for some time on proposed revisions to 4AMLD. We have also, via our relevant STEP branches, been active on the issue in several EU Member States.

The existing 4AMLD recognises that many trusts are sensitive family arrangements, often designed to protect the interests of vulnerable family members. Trusts are therefore treated differently to corporate structures: beneficial ownership information on trusts is not publicly available and is only accessible by recognised competent authorities, and registers of trusts are confined to trusts with tax consequences, reflecting the fact that any risk assessment suggests that this is where the highest risk of abuse lies.

The proposed revisions to 4AMLD effectively put trusts on the same basis as most corporate structures. This means Member States would be required to establish comprehensive beneficial ownership registers of ALL trusts – a change that will impact on millions of ordinary families. It also would require that such register should be available, as a minimum, to anyone who has a ‘legitimate interest’ (not defined – but understood to include journalists and NGOs with an interest in this area), and allowing Member States to open such registers even to those with no demonstrable ‘legitimate interest’ in the information.

In spite of STEP’s best efforts, and the best efforts of other professional bodies who have been working with us on this issue, our arguments against these proposals were getting little attention from policy makers. The original proposals for the revision were sparked by a wave of terrorist attacks in Brussels, and then were increasingly seen as a necessary political response to the Panama Papers scandal. Brexit then did few favours for those trying to argue in Brussels for the merits of what are still generally seen as ‘Anglo-Saxon trusts’…

It is encouraging, therefore, that the European Data Protection Supervisor, a powerful voice in Brussels, has now weighed in with a stinging review of the proposed amendments. They are seen as having muddled objectives underpinned by little objective risk assessment and paying scant regard to the issue of proportionality, particularly in the proposal to allow wide access to beneficial ownership information on family trusts. We can only wait and see how this impacts on the intense debate that is currently going on in the EU Parliament on the proposals.

 

George Hodgson is Chief Executive of STEP

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 – the reality

STEP logo iconThere have been a number of recent press articles about the role of STEP, a leading professional body, in the wealth management industry. Some of these articles have presented a highly distorted view of STEP and the activities of our members.

STEP members, known as TEPs, spend their professional lives helping families plan for their futures: from drafting a will or advising family businesses, to helping international families and protecting vulnerable family members who may have mental capacity issues or other forms of disability. With around 20,000 members worldwide, TEPs are the acknowledged specialists in giving advice to families in these areas.

Some TEPs focus on servicing very wealthy families, often with a range of international interests, who need expert advice to manage their affairs to ensure all tax and legal requirements are met in multiple countries. Most TEPs, however, are engaged in helping ordinary families deal with everyday problems. All are committed to the high technical and professional standards that STEP promotes and insists on from all its members.

Internationally, STEP has an important role to play in improving professionalism among all those working with families in areas such as inheritance planning and the care of vulnerable relatives. We are thus proud to be actively involved in helping raise standards in jurisdictions where there have to date been few, if any, equivalent professional bodies.

STEP also works constructively and transparently with a range of policymakers. As acknowledged global experts in their fields, STEP members have an important role to play in ensuring that policy development is informed by the practical experience of professionals working in the relevant area. STEP’s responses to official consultations are all publicly available on the STEP website (see www.step.org/consultation-tracker/1).

George Hodgson is Interim Chief Executive of STEP

Why do people go offshore?

George HodgsonTaking a global view, the period since 2008 has been marked by unprecedented activity aimed at improving tax transparency. First of all we had tax information exchange on request. More recently the move has begun to automatic exchange of tax information. The same period has also seen enormous emphasis internationally on improving the availability of beneficial ownership information.

All this activity focused on improving transparency ought, logically, to have been bad news for the so-called ‘secrecy jurisdictions’. It is perhaps surprising, therefore, that the reality looks somewhat different.

Researchers at the European Parliament have dug out some rather curious statistics from the Bank of International Settlements. Over the period 2008-2015 cross-border deposits have grown on average by 2.81 per cent. Over the same period, cross-border deposits in the rest of the world have grown by 1.24 per cent. In other words, during a period of unprecedented activity regarding building transparency, the share of the offshore centres in the cross-border deposit market has actually gone up.

What does that imply? Some will undoubtedly represent this as clear proof that current transparency measures aren’t working. Indeed the same EU Parliament report that presents the statistics goes on to request ‘a study on the feasibility of a global register of all financial assets held by individuals, companies and all entities such as trusts and foundations’. This just goes to show that Big Brother still has his supporters!

Others might see the continued growth in offshore in an age of transparency as demonstrating that the appeal of offshore in reality has little to do with ‘secrecy’. It is hard to imagine that any client moving funds to one of the major offshore centres does not expect those funds to be reported at some point to their domestic tax authority. It is impossible to believe that any of their advisors do not know that at some point their client’s position is likely to be reported to their domestic tax authority.

The conclusion therefore has to be that most of the funds going offshore are there not for secrecy but for other reasons, for example geographic diversification; strong financial infrastructure; or tax neutrality. But it is clear that regardless of the move to transparency, offshore centres still have strong client appeal.

George Hodgson is Interim Chief Executive of STEP

French trust register goes live to public on 30 June

George HodgsonFrance has taken the unprecedented decision to put its register of trusts online and freely accessible this week.

From 30 June the French trusts register can be accessed by using a number of search criteria, including the name of the trust, or identity of the trustee, settlor or beneficiaries.

France obtained this information as trustees of trusts which have a French connection, eg resident settlor, beneficiary and/or holding French assets, have been required to file reports with the French tax authorities since 1 January 2012. Failure to comply is punishable by a fine of at least EUR20,000, or 12.5 per cent of trust assets, if higher.

STEP is highly critical of the move, noting that the data was supplied for tax purposes in good faith, and with no permission for it to be made public.

There is no protection offered for details of vulnerable beneficiaries, such as children, elderly people, or those with limited mental capacity.

This information is strongly biased towards non-French structures, which are being treated on a different basis to French structures.

In addition, there has been no attempt to ensure that the information remains relevant or up to date; nor is there any facility to remove data that is no longer correct.

 

George Hodgson is Interim Chief Executive of STEP

Registers of beneficial ownership – the end game?

George_Hodgson-2016On Friday (22 April) HM Treasury announced that a further 19 countries have now joined the UK-led pilot project launched with Germany, France, Italy and Spain for the automatic exchange of information on beneficial ownership. These include the Netherlands; Romania; Sweden; Finland; Slovakia; Latvia; Croatia; Belgium; Ireland; Slovenia; Denmark; Malta; Lithuania; Cyprus; Bulgaria; Portugal; Estonia; Greece; and Czech Republic.

Following this, the Informal ECOFIN meeting of finance ministers of all 28 EU member states ahead of the Netherlands Presidency announced that they welcomed the fact that ‘all member states’ will enter into a pilot project for the automatic exchange of information on ultimate beneficial owners. In addition, they also announced that the Netherlands Presidency will take forward and broaden the work on the amendment to the 4th Anti-Money Laundering Directive (which will be submitted to the European Parliament and the Council in June). Ministers encouraged the Commission to ‘consider improvements to address certain issues linked specifically to money laundering, in particular to enhance accessibility of beneficial ownership registers on corporate and other legal entities, as well as on trusts and similar legal arrangements, to clarify the registration requirements for trusts, to speed up the interconnection of national beneficial ownership registers, promote automatic exchange of information on beneficial ownership between authorities, and strengthen customer due diligence rules.’

At the recent FATF meeting in Vienna that STEP attended there also growing pressure from the banks to allow them access to any beneficial ownership registers, even if the general public is not allowed access.

Add all this to the announcement from the OECD that the G20 has asked the Global Forum and the FATF ‘to make initial proposals by October 2016 on ways to improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information and its international exchange’ and it is clear that international policy agenda has shifted fundamentally since the ‘Panama Papers’ story broke, and few would rule out it shifting further still as more leaks emerge.

We suspect many people will be struggling to keep up with the sheer volume and speed of the announcements now coming out in the area of transparency. To this end we are therefore very fortunate to have the head of CRS implementation at the OECD and a leading spokesman from Transparency International, as well as leading practitioners, joining us for in-depth discussion on these issues at the STEP Global Congress in Amsterdam on June 30- 1 July. This will no doubt provide crucial insight into just what is the end game, and how we can move forward.

George Hodgson is Deputy Chief Executive of STEP

OECD: ‘Public release of taxpayer information is not consistent with the international standards for tax transparency’

George_Hodgson-2016STEP yesterday (14 April) received a letter from Mr Kosie Louw, Chair of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which was sent to all members of the Global Forum.

 

The letter contains the following statement:

‘I want to state that the public release of taxpayer information is not consistent with the international standards for tax transparency. Indeed, a key aspect of our work has been concerned with ensuring that when such information is held by governmental authorities it is shared only with persons authorised in accordance with the standard and the applicable international agreements that give effect to both EOIR and AEOI.’

STEP welcomes this statement, which reinforces our message that while we support international initiatives on transparency and anti-money laundering, families have a right to legitimate confidentiality in their financial affairs and there must be effective safeguards to protect their information from risk of abuse.

We look forward to working with the OECD in the weeks and months ahead to support and inform their efforts in combatting tax evasion and any actions that support criminal activity such as money laundering and terrorist financing, and to rebuild public confidence in the international finance system.

 

George Hodgson, Deputy Chief Executive, STEP

CRS and charities: watch out for reporting obligations

George HodgsonThe OECD Common Reporting Standard (CRS) is probably going to impact directly every STEP member outside of the US – the only major international financial centre not so far committed to joining the CRS. Even STEP members in the US, however, are likely to have to consider CRS’ implications for any clients they have with widely spread financial interests.

Fortunately, CRS is very closely based on FATCA, so most of the work practitioners have done on FATCA implementation over the past couple of years should serve them well when it comes to CRS implementation over the next year or two. There are, even so, a couple of wrinkles in CRS which might trap the unwary.

One difference is that some of the reporting options available to trusts which are considered Financial Institutions (FIs) under FATCA, specifically ‘owner documented’ status and ‘sponsored investment entity’ status, are not available under CRS. Basically, under CRS, trusts that are FIs can either be trustee-documented trusts or must report directly, although they can come to third party service agreements with others to complete their reporting for them if they wish.

Another potential trap is that while all regulated charities were essentially exempt from FATCA reporting, some charitable trusts will need to file reports under CRS.

Charitable trusts that are Non-Financial Entities (NFEs) are regarded as Active NFEs under both FATCA and CRS and are therefore not reportable. Under FATCA, charities that are FIs were also carved out as ‘Deemed Compliant Financial Institutions’ and thus did not need to register or report. Under CRS, however, such charitable trusts do not have ‘Deemed Compliant’ status. Thus, under CRS, charitable trusts that are FIs – typically because they have a discretionary fund manager – will need to perform due diligence, establishing the tax residence of all Controlling Persons (including beneficiaries) and report any reportable accounts.

STEP recently arranged a meeting between some charity advisors and HMRC on this issue and HMRC are now looking to draft some additional guidance for the charity sector in the issues raised by CRS. In drafting this guidance HMRC would welcome further input from practitioners. Therefore, if you have encountered any specific difficulties or have any particular questions, please contact STEP and we will undertake to pass them on to HMRC as they are drafting their guidance.

George Hodgson, Deputy Chief Executive, STEP