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This publication is available at https://www.gov.uk/government/publications/hm-revenue-and-customs-trusts-and-estates-newsletters/hmrc-trusts-and-estates-newsletter-august-2018
Welcome to the August 2018 edition of the HMRC Trusts and Estates Newsletter.
We do not have a mailing list for the newsletter.
Annual Refresh 2018
Tax agents and advisers play an important role in helping their clients to get their tax returns correct, but many agents do not complete a large number of Trust and Estate returns, as it is a specialised area.
HMRC have 20 agent toolkits to download and use. They are a free online resource aimed at helping you avoid the most common errors we see in returns filed by agents.
The toolkits are updated yearly to reflect changes in the relevant Finance Act. In the March newsletter, we informed you that the 2018 toolkit refresh had begun.
Refreshed versions of both the main Trusts and Estates and supplementary Capital Gains Tax for trusts and estates toolkits were published in April.
The HMRC trusts and estates toolkit helps and supports tax agents and advisers for whom trusts and estates is not a significant element of their practice’s work. Other agents may still find the toolkit helpful in validating their approach to this work and anyone, including businesses, trustees, and personal representatives may find the toolkit useful if they are completing a Trust and Estate Tax Return.
The HMRC Capital Gains Tax for trusts and estates toolkit helps and supports tax agents and advisers by providing guidance on the errors we find commonly occur in relation to Capital Gains Tax for trusts and estates and supplements the main toolkit for trusts and estates. Use this toolkit if you need to complete form SA905 trust and estate capital gains supplementary pages. If there has been a chargeable gain in the period the return covers, or you are not sure whether Capital Gains Tax applies, use both toolkits.
In July, we also refreshed the Inheritance Tax (IHT) toolkit to assist you with completing IHT Account form IHT400. The toolkit may be helpful when completing the excepted estate forms IHT205 or C5 (for Scotland) as many of the considerations, such as valuation, also apply to these.
Your feedback makes a difference
Feedback is vital in helping HMRC develop the service to meet your need. By using our toolkits feedback form, you can rate your experience and raise any comments, or issues you may have to help us improve.
IHT Disclosure of Tax Avoidance Schemes (DOTAS) Guidance – Update
The guidance on the new IHT hallmark has been included in HMRC’s guidance on the DOTAS regime as a new Chapter 13. Consequently, the link to the standalone IHT guidance referred to in the March edition of the newsletter has been disabled.
Following feedback from stakeholders and customers, we have recently made some amendments to our guidance on the valuation of individual items within an estate. Previous guidance across both excepted and non-excepted estate regimes varied, but broadly suggested that professional valuations should be sought for any individual item above £500.
The guidance, located in the IHT206 and IHT400 notes, has been updated to advise that valuations should only be sought if you think an item may be worth more than £1,500 or in instances where the value of an item cannot be reasonably estimated.
This update has not changed the way that valuations should be conducted and items should still be valued using the open market value at the date of death, not an insurance or replacement value.
Clarification of Timelines
In the special edition newsletter published in April 2018, we set out the improvements we had made to our processes and timelines.
Following further feedback, this article is to clarify the:
- date at which the new timeline applies; and
- timeline for issuing our calculations and the IHT421 or certificate of confirmation.
The new process and timeline applies to form IHT400s processed by us on or after 16 April 2018.
The timeline sets out that ‘we aim to issue the IHT421 within 10 working days of receiving your form IHT400 Inheritance Tax Account, or payment of tax, whichever is later’.
The 10 working days referred to in our timeline starts on the day we receive your account or payment, whichever is later, and ends when we issue the IHT421. You will need to allow additional time for your forms to reach us and for the IHT421 to be posted back to you. Depending on the courier service you use, this can add an additional 5 – 10 working days.
IHT Process – Residence Nil Rate Band
IHT Form 436
HMRC recently encountered a problem with the interactive functionality on the form IHT436 and removed the interactive version until the issue had been resolved. The issue has now been resolved and the interactive version has been republished.
Trusts Registration Service
The Trusts Registration Service (TRS) has been available for lead trustees and their agents since July and October 2017, respectively. It enables trustees and their agents to register trusts and complex estates online.
Paper Registration Forms
UK agents and trustees should no longer use paper registration forms unless you have written agreement from HMRC to do so. Registrations should be carried out online.
HMRC are aware that some agents encountered problems with Agents Online Services, these issues were rectified on 12 January 2018. If you are still experiencing difficulties, call the Trusts and Estates Helpline.
Trusts and complex estates that have incurred a liability to Income Tax or Capital Gains Tax in the tax year 2017 to 2018, and have never been liable for these taxes previously and not already registered on TRS, will need to complete registration on the TRS by no later than 5 October 2018. This will ensure compliance with both Self-Assessment tax requirements and the obligation to register trust beneficial ownership information on the TRS in compliance with money-laundering regulations.
The trustees of all other trusts that have incurred a liability to any relevant tax in the tax year 2017 to 2018 must register beneficial ownership information about the trust on TRS, by no later than 31 January 2019, if they have not already done so. (That is, if a trust has had previous tax liabilities, but did not incur a tax liability in tax year 2016 to 2017, and therefore was not required to register on TRS at that point.)
If a pension scheme set up as an express trust is registered on HMRC’s Manage and Register Pension Schemes or Pension Schemes Online then it does not need to register on the TRS.
Pension schemes that are not registered on Manage and Register Pension Schemes or Pension Schemes Online, and are set up as express trusts and incur a UK tax liability will need to register on the TRS no later than 31 January after the end of the tax year in which they incurred a UK tax liability.
Updating the TRS
HMRC are implementing the TRS in a number of phases. Currently, it is not possible for lead trustees and their agents to update their registered information or to declare that there have not been any changes on the TRS. Updates on when this functionality may be available will be provided in future newsletters.
In the meantime, if you need to inform HMRC that the lead trustee or trust correspondence address has changed then please write to us at:
HM Revenue and Customs
There is a specific question (number 20) on the SA900 trust tax return asking if the TRS has been updated. For now, please submit completed SA900 forms without answering Question 20 and leave the tick box blank. You will not be penalised for not answering Question 20. Our apologies for any confusion this may cause.
European Union (EU) Fifth Money Laundering Directive
The fifth version of the EU-wide Money Laundering Directive (5MLD) entered into force at EU-level on 10 July 2018. 5MLD builds on previous iterations of the Directive, in particular the Fourth Money Laundering Directive (4MLD), to take robust measures to counter money laundering and terrorist financing, in part by enhancing transparency.
Article 31 of 5MLD requires Member States, including the UK, to extend registration of beneficial ownership of trusts to all UK resident express trusts and non-EU resident express trusts that own UK real estate or that have a business relationship with an entity obliged to carry out customer (anti money laundering) due diligence, such as a bank, estate agent or accountant. 5MLD also requires Member States to share data from the register under certain defined circumstances, in particular as part of the customer due diligence requirements mentioned above.
Member States, including the UK, have eighteen months from 10 July 2018 to transpose the 5MLD into domestic law (by 10 January 2020), with a further two months to implement the trust registration requirements (by 10 March 2020). HM Treasury will, as they did with the implementation of 4MLD, carry out a policy consultation in winter 2018 to 19 followed by a consultation on the draft secondary legislation in spring or summer 2019.
Common Reporting Standards (CRS) and United States Foreign Account Tax Compliance Act (FATCA)
Trusts who need to report under CRS or FATCA can do so without a Unique Taxpayer Reference (UTR). These trusts do need to set up a government gateway account as an organisation. If you report details of a trust that has no UTR then you should select the option ‘Financial institution does not have a UK tax identifier’.
You can read more information about:
- trustees tax responsibilities
- how to register your client’s trust
- trustees record keeping responsibilities
- for TRS policy and legislative related enquiries only email: email@example.com
Administration period of Deceased’s Estates: Income Tax and Capital Gains Tax
Informal Payment Arrangements
The tax liability of most deceased’s estates during the administration period is straightforward and can be dealt with by HMRC Pay As You Earn and Self-Assessment.
Personal representatives (executors or administrators) provide HMRC with a calculation of the amount of tax due. HMRC will then provide a payment slip with a reference number, for this payment only, for the Personal Representative to then make a one-off informal payment of the total tax liability for the whole period of administering the deceased’s estate, provided certain conditions are met.
The main condition is that the total tax liability (Income Tax plus Capital Gains Tax) for the entire administration period is £10,000 or less. The other conditions are that the:
- probate or confirmation value of the estate is not more than £2.5m
- proceeds of assets sold by the personal representatives in any one tax year are not more than £250,000, for deaths up to 5 April 2016 or not more than £500,000 for deaths after 5 April 2016
- estate is not regarded as complex, so it can be dealt with without the personal representatives having to complete a Self-Assessment return
All informal payments made for the administration period, should include the reference number provided by HMRC for payment of the administration period tax due. Any payments made by cheque should include on the reverse the following information:
- the name of the deceased
- the last private address of the deceased
- the deceased’s National Insurance number or Self-Assessment UTR or reference which has been provided by HMRC for this payment
- the reason for this payment indicating Administration Period
The covering letter with the cheque for payment of the tax due should be sent to HMRC.
HMRC Administration of Estates Cardiff is responsible for dealing with all aspects of the period of administration where the case is regarded as a complex case (subject to the exceptions at TSEM7366).
An estate is considered complex if:
- the probate or confirmation value of the estate is more than £2.5 million
- tax due, Income Tax and, or Capital Gains Tax for the whole of the administration period exceeds £10,000
- the proceeds of assets sold by the personal representative in any one tax year for date of deaths up to 5 April 2016 exceeds £250,000 or £500,000 for date of deaths after 5 April 2016
If the estate does not fall into any of the above categories but it cannot easily be dealt with under the informal payments procedures, contact HMRC Administration of Estates Cardiff for advice on who should deal with the administration period liability.
Estates are not part of the TRS requirements under the legislation that transposed 4MLD, but the method by which complex estates register with HMRC is through the same online process. Personal representatives of complex estates are required to use the TRS to obtain a UTR number for the estate they are administering. The register will ask for basic information, including the identification of the deceased and the personal representatives. For more information, read how to register an estate on TRS.
If an estate is considered complex, Self-Assessment Trust & Estate tax return SA900 will be required for each year of the Administration period. Self-Assessment deadlines for the late submission of tax returns and penalties for late payment of tax apply.
It should be evident when gathering assets and if dealing with the Inheritance Tax account if the probate or confirmation value of the estate is over £2.5m and the estate is therefore considered by HMRC as complex for the Income Tax and Capital Gains Tax of the administration period. Equally, the value of an asset will be required at date of death, which should give some indication if the value is likely to exceed £500,000 when the Executor is selling the asset.
For Income Tax due over £10,000 the estate would be in receipt of gross income exceeding £50,000 during the whole of the administration period which could be from one or various sources: bank and building society interest, dividends, property related income and many more. Again, this should be evident from assets held in the estate but may not be clear early in the administration period. The informal payment procedures can only be used once and only when the administration period has ended. If the £10,000 Income Tax due is exceeded HMRC should be notified as a Self-Assessment Trust & Estate tax return SA900 will be required to be submitted.
Only rarely, should an estate be reported as informal at the end of the administration period and then subsequently, a criterion for complex estate is triggered. This could be a previously unknown assets comes to light which exceeds the informal criterion values. In these circumstances, the estate should be registered on the TRS in order to request a UTR and a Self-Assessment Trust & Estate tax return SA900 will be required for each year of the administration period to declare all the income and, or capital gains information. Any payment previously made using the informal route will be transferred and used against the total tax now due and included in the Self Assessment statement of account.
Further information can be found in the Trusts, Settlements and Estates Manual (TSEM7000+).
HM Revenue and Customs
Administration of Estates
Deceased Estate Telephone Helpline
Get advice on a deceased person’s estate about:
- Income Tax
- Capital Gains Tax