STEP’s first Virtual UK Annual Tax Conference

Robert CaringtonThe first STEP Virtual STEP UK Annual Tax Conference was held on 26 June with over 800 people attending online. The day was a radical departure for STEP, with conventional meetings postponed or cancelled due to COVID-19. While it did include some glitches, attendees have the opportunity to catch up on any material they missed, with presentations available for a full year.

The day saw some outstanding STEP members speaking on topical matters, and we were delighted to host Emma Chamberlain OBE TEP, Robert Jamieson TEP, John Barnett TEP, Dawn Register TEP, Katherine Bullock TEP, John Woolley TEP and Deborah Clark TEP.

Emma Chamberlain presented the first session, giving an update on inheritance tax (IHT), which covered the Barclays Wealth case and the resulting legislation on excluded property settlements; and the definition of charity in IHT after the Routier case and its implications. She noted the work done by the Office of Tax Simplification and the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness (APPG) on IHT reform was something to watch.

Robert Jamieson TEP covered capital gains tax (CGT) main residence relief and the statutory changes in the Finance Bill 2020 relating to residency, in a comprehensive presentation.

John Barnett TEP gave an informative update on Agricultural Property Relief (APR) and Business Property Relief (BPR), covering their structure, key cases such as Gill and Brander; and finishing with predictions on their reform; he noted that the CGT uplift was the most likely to be reformed by any government in the near future.

The afternoon session started with Dawn Register TEP giving advice on dealing with HMRC, covering areas such as its No Safe Havens 2019 programme to ensure offshore tax compliance and its risk assessment process. She also explained changes made due to the COVID-19 pandemic, including the relaxation of some deadlines.

Katherine Bullock TEP followed with a practical session focused on such IHT calculations as chargeable lifetime gifts, how to arrange settlements and when grossing up is necessary.

John Woolley TEP was next with an update on pension transfers and lump sum IHT plans following the Staverley decision in the Supreme Court in May 2019. John covered the advantages and disadvantages of death benefits being paid through either flexi access drawdown or by-pass trusts the protection of funds on divorce or insolvency; and dealing with the valuation issues of the ten-year periodic charge and their impact on loan trusts and discounted gift trusts, as well as any problems that may arise.

The final presentation of the day was from Deborah Clark TEP who spoke on family investment companies and their use. Her presentation covered their structure and funding and asset protection as well as how they were treated by income tax.

  • Our thanks to the event’s sponsors: James’s Place, Fraser and Fraser, National Philanthropic Trust, Octopus Investments, and Remember a Charity.

Robert Carington is Policy Executive at STEP

Update from HMRC’s Trusts and Estates team

HMRC’s Trusts and Estates team met with the Agents Advisory Group and Capital Taxes Liaison Group in May and provided the following updates:

Operational update

Despite the unique challenges presented by the current COVID-19 situation, inheritance tax and trusts operational areas are currently meeting all key targets and processing post and new accounts within published turnaround times.

A new webchat service was launched in May, which can be used to obtain help when completing the IHT400 forms and schedules, and to answer other inheritance tax and probate questions.

HMRC confirmed that IHT421 forms can now be emailed directly from HMRC to HM Courts and Tribunals Service. HMRC is unable to email customers due to security protocols in place, but will either reply in writing, or add a note to the calculations.

There have been periods when the Trusts Helpline call response times have increased. If you are experiencing problems getting through, you can email HMRC at trustsfeedback@hmrc.gov.uk.

Digital signatures for IHT205

HMRC confirms that the digital signature process now applies to IHT205 forms, as well at IHT400 and IHT100 forms, until further notice. It will accept IHT205 forms that are not physically signed from professional agents, if:

  • the names and personal details of the legal personal representatives are shown on the declaration page;
  • the account has been seen by all the legal personal representatives, and they all agree to be bound by the declaration;
  • the agent includes the following statement:
    ‘As the agent acting on behalf, I confirm that all the people whose names appear on the declaration page of this Inheritance Tax Return have both seen the Inheritance Tax Return and agreed to be bound by the declaration on page 8 of the form IHT205.’

The GOV.UK website has been updated to reflect these changes.

Electronic submission of IHT form update

HMRC is offering Dropbox as a temporary measure to support agents when it is not possible or practical to submit IHT400 and IHT100 accounts by post during the COVID-19 disruption.

HMRC retains full ownership of all information/data that it places in Dropbox and all information/data that an agent submits there. Only the HMRC Dropbox account holder and the HMRC security audit team can access the information.

Time limits and penalties for late filing and payment

HMRC has updated the guidance on reasonable excuse to include occasions where customers have not been able to file their accounts on time due to the impact of COVID-19.

Claim time limits for IHT reliefs

HMRC has enquired about deadlines for IHT relief claims that may be impacted by the present disruption customers are facing. The three areas which have been raised are the time limits for: relief on property sales, relief on sale of shares and instruments of variation. HMRC is continuing to monitor the position.

STEP will continue to monitor the developments and update members accordingly.

Emily Deane TEP, STEP Technical Counsel

Update on HMRC’s Capital Gains Tax Manual

Robin_Vos 100Following a query raised on the Trusts Discussion Forum, STEP’s UK Technical Committee has been considering the capital gains tax consequences of a deed of variation of a will in circumstances where the asset which is the subject of the variation has already been disposed of by the original beneficiary.

The specific issue raised was whether the original beneficiary should be taxed on the disposal of the asset or whether the capital gains tax deeming provisions relating to deeds of variation have the effect that the donee under the deed of variation should be treated as having disposed of the asset.

Part of the uncertainty had been caused by the apparent inconsistency of two paragraphs in HMRC’s Capital Gains Tax Manual: CG31600 and CG31630.

The committee has been in correspondence with HMRC in order to clarify this point. HMRC has confirmed that:

  1. It is possible to have a valid deed of variation in relation to an asset which has already been disposed of by the original beneficiary.
  2. The effect of the deeming in s.62(6) TCGA is that the donee under the deed of variation is treated as having acquired the asset from the personal representatives and must therefore also be deemed to be the person who disposed of the asset.
  3. If the original beneficiary and/or the donee have already filed tax returns for the relevant tax year they will be able to amend their tax returns and/or make a claim for relief from overpaid tax.

HMRC has amended paragraph CG31600 of its CGT Manual to reflect its view.

Robin Vos TEP, Chair of STEP’s UK Technical Committee.

 

Trust Registration Service: clarification on reporting requirements

HMRCIt has come to STEP’s attention that in HMRC’s GOV.UK guidance on how to register a trust, the guidance about which beneficiaries need to be registered on the Trust Registration Service (TRS) differed in certain important respects from the HMRC guidance that was published on 22 November 2017.

For example, the GOV.UK guidance said: ‘When a member of a class becomes known they must be named, even if they have not benefited yet’, whereas HMRC’s 22 November 2017 guidance said: ‘…But where a beneficiary is un-named, being only part of a class of beneficiaries, a trustee will only need to disclose the identities of the beneficiary when they receive a financial or non-financial benefit…’.

STEP contacted HMRC about this discrepancy and it confirmed that the 22 November 2017 HMRC guidance ‘is still current and correctly reflects the requirement for trustees to disclose details of the identity of all named/known beneficiaries.’ HMRC has since made amendments to the GOV.UK guidance with regard to which beneficiaries must be disclosed.

HMRC also confirmed that although the GOV.UK guidance states that trusts that have registered for FATCA/CRS do not need to be registered on TRS, this is not accurate. The inaccuracy reportedly results from an incorrect transposition of guidance that was in the August 2018 Trusts and Estates Newsletter, which referred to trusts that need to report under FATCA or CRS that don’t have a Unique Taxpayer Reference (UTR). To date, however, HMRC has not amended the GOV.UK guidance in this regard and STEP will be taking up this issue with HMRC.

Imogen Davies TEP, STEP UK Technical Committee

EW probate delays: September update

Emily Deane TEPUpdate 21 November: HM Courts & Tribunal Service (HMCTS) has announced this week that all legal professionals’ probate calls have been centralised and are now dealt with by the Birmingham Courts and Tribunals Service Centre (CTSC). You will no longer be required to contact a local registry if you need an update on your client’s applications.

The CTSC will be able to confirm whether the application has been received, where the application is being processed, the current service level, when it expects the grant to be issued and whether a ‘stop’ is in place and the reason for it. HMCTS anticipates that the new process will allow the Registry staff resource to process your paper applications more efficiently.

The Probate CTSC helpline number is 0300 303 0648 and is open Monday to Friday from 9.30am to 5pm.

Update 22 October: HMCTS has confirmed legal professionals and personal applicants will be able to call the Birmingham CTCS from 4 November for an update on any application in England and Wales, provided it has been uploaded to its system.

The CTSC will be able to confirm:

  • if the application has been received;
  • where it is being dealt with;
  • the current level of service in that registry;
  • when its expects the grant to be issued;
  • whether a ‘stop’ is in place.

This information will be passed to the registry which will contact the legal professional/applicant directly.

HMCTS hopes to have the staff resource to open the Birmingham CTCS Monday to Friday from 8am to 8pm, and on Saturday mornings from 8am to 2pm.

Contact details for this service will be available shortly.

In the meantime, please email probatefeedback@justice.gov.uk for queries rather than contacting individual probate registries.

Update 10 October: STEP met HMCTS at its Birmingham office yesterday where a few key points were made:

  • HMCTS is now issuing almost 7,000 grants a week.
  • It is inputting information received within three days.
  • It has confirmed that the Birmingham CTCS office can be called for an update on any application in England and Wales. It has a proper telephony system, and an agent will always answer a call and have access to the central system.
  • If members use the new online service, they will be notified by email if there are any issues, rather than by post. This may accelerate the speed of their application moving forwards.
  • HMCTS hopes to have the staffing resources to open the Birmingham CTCS office on Saturdays from 8am-8pm shortly.

Original blog 10 September: STEP met HM Courts & Tribunals Service (HMCTS) this week, together with The Law Society, the Institute of Chartered Accountants in England and Wales, and Solicitors for the Elderly, to obtain an update on the delays and disruption to the Probate Service in England and Wales.

HMCTS gave us the following update on work undertaken since our last meeting on 27 June.

Timescales

HMCTS is still receiving 700-800 applications a day from personal applicants and professional applicants.

It has processed 98,000 grants since April and has a backlog of applications from March.

It has increased staffing levels by 20 per cent.

It is striving to get back to its pre-March level of service, which was a 28-day turnaround for personal applicants and ten days for professional applicants.

It acknowledges that performance has not been acceptable but anticipates that delays will reduce over the coming weeks.

Stops/errors

HMCTS estimates that approximately 20 per cent of applications from professionals, and 25 per cent of personal applications need to be stopped for a variety of reasons. The most frequent problems are thought to be:

  • the IHT421 form has not yet been received;
  • not all executors have been accounted for;
  • the will has not been included;
  • names are spelt incorrectly; and
  • the forms have not been correctly signed.

The new online system (see below) will be able to more accurately identify the reasons for the stops and it is hoped this feedback will lead to fewer delays and a more streamlined process.

It is worth noting that when an application is stopped it takes some time for the registry to reconnect the paperwork. 

New system

The new online application system for professionals is due to be introduced by the end of October. Users will be able to register their organisation on the website, with no need for an invitation from the registry.

Each organisation will have a single login, to include all those using the service. Organisations will be able to suspend or terminate a person’s access if they are no longer using it.

Once registered, details of applications will be uploaded within 24 hours.

All of the main types of application will be available at launch, although some of the less frequently-used applications make take longer.

Key messages

HMCTS is encouraging registry staff to communicate via email, rather than post.

The digital pilot will be transferred in early October and launched by the end of the month.

HMCTS’ eventual aim is to digitally interact with HMRC on future applications, to reduce the delays and complications of paper trails.

The implementation of the new probate fee regime is not high on the political agenda, due to continued disruption and the prorogation of parliament.

HMCTS continues to apologise for poor service.

Emily Deane TEP, STEP Technical Counsel

EW probate delays and disruption: an update

Emily Deane TEPSTEP met HM Courts & Tribunals Service (HMCTS) this week, together with The Law Society and Solicitors for the Elderly, to obtain an update on the delays and disruption to the Probate Service in England and Wales.

HMCTS gave us the following update on work undertaken since our last meeting on 14 May:

  • It has taken on 30 new staff since the transfer to the new system.
  • It currently has 180 employees working across the Probate Service.
  • It has recruited additional legal advisors with probate experience.
  • The registry with the most significant backlog is Winchester, which is sharing its work with other registries.
  • HMCTS is issuing approximately 20,000 grants a month, of which 12-13,000 are from practitioners
  • It is dealing with grants in date order, oldest first.
  • It does not prioritise grants according to urgency, and will not deal with applications more quickly by request.
  • It is entering caveats into the system on the day of receipt.
  • It will not refund probate fees due to delay.
  • It will issue grants of probate in approximately six to eight weeks.

STEP’s request for waived interest, or longer timeframe

STEP is aware that the delays are making it difficult for members to pay IHT on estates, since they cannot gain access to funds until the grants have been issued.

STEP has asked HMCTS to consult with HMRC on this issue, to see if it will waive the interest accrued on outstanding IHT, or permit a longer timeframe for paying by instalments. We stressed that this would help ease some of the time pressure and negligence concerns of our members, and generate some much-needed goodwill.

HMCTS anticipates that once its new digital system is up and running, there will be less scope for administrative and human error. Users will be able to track applications and make corrections online.

It will continue to accept paper applications for those less able to deal with applying online.

  • HMCTS is holding a webinar to demonstrate the new online system for professional users on 4 July.

STEP will be meeting HMCTS again in August for a further briefing.

Emily Deane TEP, STEP Technical Counsel

HMRC’s five traps to avoid with CRS/FATCA reporting

Emily Deane TEPHMRC has identified the most common errors made by financial institutions (FIs) when filing their Automatic Exchange of Information (AEOI) returns, which include Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA) reportable information.

1. The FI misunderstands what constitutes an undocumented account

FIs are wrongly reporting accounts as ‘undocumented’ on the basis that a self-certification requested from an account holder has not been completed.

Accounts should only be reported as undocumented where they meet specific criteria, which include that the account has either a hold-mail instruction or a ‘care-of’ address. The full criteria can be found in CRS, Section III: Due Diligence for Preexisting Individual Accounts, subparagraphs B(5) and C(5). HMRC guidance is available at IEIM402850 and IEIM403040.

Any accounts that are correctly reported as ‘undocumented’ must show Great Britain as the residential country code.

2. The FI misunderstands what information is required to be reported 

Some FIs only complete the mandatory fields in the schema or portal, even though they hold additional information which is legally required to be reported. In addition, some FIs fill in mandatory fields with ‘n/a’ or similar.

CRS and the UK-US FATCA Intergovernmental Agreement (IGA) state which information is required to be reported. Where a schema or portal field is not mandatory, there can still be a legal requirement to provide this information. For example, where a Taxpayer Identification Number (TIN) or date of birth is held or obtained by the FI, it is required to be reported even though it is not down as a mandatory field within the portal or schema. Where an address is held, the full address must be provided, even though the only mandatory field is for ‘city’ in the schema or portal.

3. The FI reports accounts held by persons who are not reportable persons

FIs are reporting publicly traded corporations, as well as related entities, governmental entities, international organisations, central banks, and financial institutions. In most cases, such accounts are not reportable. HMRC guidance at IEIM402010 outlines which accounts are not reportable.

4. The FI misreports joint accounts and/or partnership account

Some FIs confuse the treatment of joint individual accounts and partnership accounts.

Joint individual accounts must be reported as individual accounts with the entire balance or value of the account, as well as the entire amounts paid or credited, attributed to each holder of the account.

A partnership is defined as an entity for reporting purposes, and accounts held by partnerships should be reported as entity accounts, with the respective due diligence and reporting requirements applied.

5. The FI reports entities as controlling persons 

Some FIs report entities as the controlling persons of entity accounts, resulting in trusts and companies being reported as controlling persons. However, entities cannot be controlling persons; under CRS and FATCA, ‘controlling persons’ means‘natural persons who exercise control over an entity. In the case of a trust, such term means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions. The term ‘Controlling Persons’ shall be interpreted in a manner consistent with the Recommendations of the Financial Action Task Force.’

Full HMRC guidance on AEOI reporting can be found at: International Exchange of Information Manual.

Please email Emily.Deane@step.org with any further queries.

Emily Deane TEP is STEP Technical Counsel

House of Lords report criticises HMRC’s treatment of taxpayers

HMRCThe House of Lords Economic Affairs Committee has found that HMRC is failing to guarantee fairness for taxpayers by failing to differentiate between users of sophisticated tax avoidance schemes and ordinary citizens who break the law through uninformed or naive actions.

In its report, The Powers of HMRC: Treating Taxpayers Fairly (PDF), the committee found that declining resources had left HMRC unable to tackle tax avoidance and evasion whilst ensuring taxpayers are treated fairly. Highlighting a number of areas where the HMRC’s conduct appeared disproportionate, the committee recommended further work take place to ensure there is sufficient oversight of the department.

The report heavily criticised the process HMRC uses to introduce new powers, noting that too often specific solutions were identified by the department before any consultation on the wider objectives. The committee recommended that HMRC listen more carefully to the views of tax and business experts during future consultations, to ensure new legislation is properly targeted.

The committee said new measures on offshore time limits should be withdrawn, pending further discussions between HMRC and tax professionals. The plans would require those with offshore elements to their tax affairs to keep records for up to 12 years to deal with HMRC questions. Any new legislation should be more proportionate and targeted than the current plans allow.

There was heavy criticism for proposed new civil information powers, which would allow HMRC to seek information from third parties without the agreement of the tax tribunal, or the relevant taxpayer. The committee said HMRC had failed to offer a convincing rationale for the change, and recommended it be withdrawn ahead of further consultation.

The committee also noted that the government has a responsibility to give HMRC sufficient funding to be fair to taxpayers. The Treasury is recommended to assess whether the department is adequately resourced as part of the 2019 Spending Review.

The next stage in the process is for the government to respond to the committee’s findings. STEP will monitor the situation and provide updates on any further developments.

Daniel Nesbitt, Policy Executive, STEP 

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

UK trust taxation under review

Simon HodgesOn 7 November, the UK government launched its review into the taxation of trusts, almost a year after announcing it in the 2017 Autumn Budget.

The consultation, which will run until 30 January 2019, focuses on the principles of transparency, fairness and neutrality, and simplicity. The government’s stated aim is to ensure that the many people who use trusts will benefit from a ‘clear and transparent regime that is easy to understand’.

STEP welcomes the review, which provides an opportunity to address some of the complexities that exist around the current system of trust taxation and to suggest changes to the taxation of trusts that would be positive for both practitioners and their clients. It will also enable us to address any misconceptions around the uses of trusts.

Media around the consultation has, in many cases, focused on the issue of improving transparency in relation to trusts to prevent them being used for tax avoidance purposes. However, transparency is only one of the aims of this review, and the government acknowledges in the consultation document that there is already a large amount of ongoing activity in relation to trust transparency, and suggests that any new activity must take into account that the vast number of trusts are used legitimately.

STEP has already formed a working group to help respond to this important review, which includes senior members drawn from both the UK Technical and UK Practice committees. We have been in contact with HMRC since the review was announced, and will continue to engage as we develop our response further. We will keep members updated of further news in this area over the coming months.

Simon Hodges is Director of Policy at STEP