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 22 October: HM Courts & Tribunals Service (HMCTS) has confirmed legal professionals and personal applicants will be able to call the Birmingham Courts and Tribunals Service (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

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