Guidance

HMRC Trusts and Estates Newsletter: April 2023

Updated 26 March 2024

Welcome to the April 2023 edition of the HM Revenue and Customs (HMRC) Trusts and Estates Newsletter.

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Simplifications for trusts and estates

The government has published a summary of responses to the April to July 2022 consultation on low income trusts and estates. Following the responses, the government announced at Spring Budget 2023 it will legislate in Finance (No.2) Bill 2023 to simplify how income tax applies to trusts, estates and their beneficiaries. See the Simplifications for trusts and estates policy paper.

Tax free limit for income

The existing informal arrangement will be formalised and widened so that from 6 April 2024, trusts and estates with income of all types up to £500 do not pay tax on, or report, that income as it arises. Where income exceeds that amount, tax will be payable on the full amount.

The new £500 tax-free amount will be reduced for some groups of trusts set up by the same settlor.

For estates, the £500 tax-free amount will apply:

• for every tax year of administration, but unused amounts do not roll over to subsequent years when reporting under informal procedures
• to chargeable income, after taking off ISA income which continues to be exempt after a person has died until closure or up to 3 years following the death

In the interim, the existing informal arrangement is extended to include tax year 2023 to 2024. Trusts and estates do not need to report income tax where their only source of income is savings and the tax otherwise payable is no more than £100.

Trust Registration Service

A trust does not become a registrable taxable trust by having chargeable income in a tax year if the tax-free limit means it is not liable to any taxes in the UK.

But it may be a taxable trust if it pays other taxes; and most express trusts are now required to register on the Trust Registration Service, even if they do not pay tax. Read guidance on registering a trust.

Basic rates slice and tax pools

The new tax free amount does not affect trust ‘tax pool top-up’ payments chargeable to income tax.

From tax year 2024 to 2025, the basic rates of tax will be withdrawn from the first £1,000 slice of income for accumulation and discretionary trusts. Therefore, once the new tax free amount is exceeded, the trust rates of tax will apply to all of the income. This will help simplify calculations for both large and small trusts.

Trusts and income tax guidance provides information on the £1,000 slice, types of trust and tax pools.

Additional guidance will be given on the changes in due course.

From tax year 2024 to 2025 onwards, beneficiaries of estates will not pay tax on income distributed to them that was within the £500 tax-free amount for the personal representatives. Where beneficiaries receive income distributed from an estate where the tax-free limit did not apply, that income remains taxable for the beneficiary.

For general estate beneficiary guidance read Tax on property, money and shares you inherit.

Additional guidance will be included in the Trusts Settlements and Estates Manual in due course.

Inheritance tax

HMRC also intend to make changes to inheritance tax regulations for ‘excepted settlements’ and ‘excepted transfers and excepted terminations’ so that more non-taxpaying trusts, and transfers into trusts, meet the requirements that mean a return is not required.

Capital Gains Tax on divorce

Legislation has been included in the Finance Bill making changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating. It gives them up to 3 years in which to make no gain/no loss transfers of assets between themselves when they cease to live together; and unlimited time where the assets are the subject of a formal divorce agreement.

It also introduces some rules that apply to individuals who have maintained a financial interest in their former family home following separation.

More information is available in Capital Gains Tax: transfer of assets between spouses and civil partners in the process of separating.

Capital Gains Tax on UK property paper return

Following customer and representative body feedback, HMRC has made the paper version of the Capital Gains Tax (CGT) on UK property return, and notes to help you complete the return, available to download at Report Capital Gains Tax on UK property.

This is on a trial basis of up to 4 months starting from 28 February 2023. The downloadable forms are not intended to replace the online CGT on UK Property Account and are only intended to assist those who cannot report and pay your Capital Gains Tax using the online service. HMRC will review usage of the forms for the duration of the trial period.

Please make sure you have downloaded the correct form before you fill it in. There are 2 versions of the CGT Tax on UK property return available to download. You should only use the form ‘Capital Gains Tax on UK property for an Estate’ if you are a personal representative reporting on behalf of a deceased person’s estate in administration.

As a reminder, paper returns must only be made in certain circumstances. A full list can be found at Report Capital Gains Tax on UK property. If your circumstance is not listed but you are having difficulty reporting online, contact HMRC for further help.

Trust Registration Service: discrepancy reporting from 1 April 2023

In HMRC’s August 2022 Trusts and Estates Newsletter we told you that from September 2022 relevant persons must ask trustees or agents who are engaging in a new business relationship with them to provide proof of registration on Trust Registration Service.

From 1 April 2023 discrepancy checks will have to be carried out as part of ongoing monitoring and due diligence checks. In addition to this there are changes to the definitions of what constitutes a discrepancy. Updated guidance is available in the Trust Registration Service Manual at TRSM70000.

Trust Registration Service: proof of registration

Relevant Persons should use an up-to-date proof of registration document for discrepancy checks, rather than the downloadable declaration produced upon registration.

Trustees can download the proof of registration document from the Trust Registration Service once they have completed the registration process by logging out and then re-entering Trust Registration Service to access the proof of registration document.

Trust Registration Service: settlor information

Following feedback received from users, HMRC has amended the Trust Registration Service to clarify what information should be provided for settlors that are deceased at the time of registration.

When adding a settlor to a trust record, users will now be asked whether that settlor is deceased at the time of registration. If so, subsequent questions will be framed in the past tense to confirm that the information required should reflect the last known status prior to death. Additionally, users will not be presented with the question on mental capacity if the settlor is deceased.

Money Laundering Regulations: future consultation

HM Treasury are expecting to consult on further changes to the Money Laundering Regulations (MLRs) before the end of 2023, as announced in the second Economic crime plan 2023 to 2026 . HMRC intend to include proposals on the Trust Registration Service elements of the MLRs within any such consultation, focusing on the scope of, and exclusions from, the requirement to register on the Trust Registration Service.

Errors relating to trusts: rectification, mistake and Hastings-Bass 

This guidance is for agents on how to contact HMRC where a taxpayer is considering seeking a trust law remedy in the High Court of England and Wales or a court of another jurisdiction and wishes to contact HMRC before issuing court proceedings.  Where the application to the court is being made for tax reasons, the taxpayer seeking the trust law remedy may ask whether HMRC wants to be joined as a party to the court proceedings.

Further information about rectification, mistake and Hastings-Bass can be found in the Trusts, Settlements and Estates Manual at TSEM1900.

Contacting HMRC

If a taxpayer is considering applying to the High Court or a court of another jurisdiction and the tax position of the taxpayer may change as a result of the application to the court, HMRC should be given the opportunity to decide whether we wish to be joined in the court proceedings.

We request that the taxpayer write to us in plenty of time to:

• ask whether HMRC wish to be joined in the proceedings
• notify us of the date of any hearing
• provide us with a copy of the claim and any witness statements

The heading of the letter should specify whether the claim falls under rectification, mistake, and/or Hastings-Bass.

Please write to us at:

HMRC
1 Unity Square (S1753)
Inheritance Tax Technical (B6-14)
Central Mail Unit
Newcastle
NE98 1ZZ

This contact address is not to be used to serve new legal proceedings on HMRC. If you wish to serve new legal proceedings on HMRC, please refer to HMRC to accept service of legal proceedings by email.

Self-Assessment returns for the tax year in which someone died and previous years

Agents wishing to file online tax returns that cover income tax and capital gains in the tax year in which a person died, or for earlier years, should refer to the advice given in Issue 103 of Agent Update.