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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-december-2017
Welcome to the December 2017 edition of the HM Revenue and Customs (HMRC) Trusts and Estates Newsletter.
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New Inheritance Tax Disclosure of Tax Avoidance Scheme regulations
The Inheritance Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2017 were laid on 30 November 2017. The regulations will come into force on 1 April 2018.
The Disclosure of Tax Avoidance Scheme (DOTAS) regime relies on regulations (or ‘hallmarks’) to describe the avoidance schemes and arrangements that have to be disclosed under part 7 of Finance Act 2004. There has been extensive consultation with stakeholders since 2014 on extending the scope of the current very narrow IHT hallmark to make it more effective. HMRC have carefully considered all comments received and held numerous meetings with stakeholders to help develop the new hallmark. The wording has been refined to take respondents’ comments and concerns into account to ensure the new hallmark is appropriately targeted to catch IHT avoidance schemes but not the straightforward use of reliefs and exemptions or ordinary tax planning arrangements.
These regulations replace the previous regulations (SI 2011/170) with new descriptions of disclosable arrangements which are designed to reduce the value of an estate on death or those which seek to avoid certain other IHT charges in addition to ‘entry charges’ on relevant property trusts. The new hallmark also ensures that established retail products, which accord with established practice that HMRC has previously accepted, do not have to be disclosed if they were first made available and entered into before 1 April 2018. HMRC will also be publishing guidance to explain how the new DOTAS hallmark works, the conditions to be met for arrangements to be notifiable, and the circumstances for certain arrangements to be excepted from disclosure. The guidance will be published before the new hallmark comes into force.
Trusts Registration Service
The Trusts Registration Service (TRS) allows trustees and personal representatives to register their trust and complex estates online and provide information on the beneficial owners of the trust. This new service replaces the 41G (Trust) paper form, which was withdrawn at the end of April 2017.
Trusts that have already submitted a 41G (Trust) paper form must enter details on the TRS by 31 January 2018.
The TRS is now the only way that trusts and complex estates can request their Self Assessment Unique Taxpayer Reference (SA UTR).
The new service provides a single online service for trusts and complex estates, which will allow them to comply with their registration obligations, improve processes around the administration of trusts, and allow HMRC to collect, hold and retrieve up to date information in a central register.
Agents and the TRS
To use the TRS, agents will need to create an Agent Services account before they can register on behalf of trustees.
If you already have an Agent Services account you need the user ID and password you created when you set up the account.
If you don’t have an Agent Services account but you’ve used HMRC online services before, you can create one the first time you register a trust. You’ll need to create a new Government Gateway ID and use those new Government Gateway credentials as part of setting up your Agent Services. You’ll also need your agency’s Unique Taxpayer Reference and postcode.
Customer feedback will inform future improvements and streamline the registration process.
TRS registration deadlines
Acting on feedback from agents and stakeholders, HMRC have further extended the TRS registration deadline for new trusts and complex estates from 5 October 2017 to 5 January 2018.
Trusts and complex estates that have incurred a liability to Income Tax, or Capital Gains Tax for the first time in the tax year 2016 to 2017 will need to complete registration on the TRS no later than 5 January 2018.
For existing trusts that are either already registered for SA or do not require SA registration, the trustees (or their agent) of either a UK or non-UK (express) trust that incur a UK tax liability, must provide beneficial ownership information about the trust, using the TRS, by 31 January after the end of each tax year. For this first year of the TRS, HMRC will not impose a penalty on the failure to register existing trusts on TRS by 31 January 2018 but no later than 5 March 2018.
The extended time limits are only for the first year of the TRS.
HMRC is currently developing the penalty framework for the TRS and will provide an update once the new framework has been finalised.
The information you need to register a trust
To register a trust you’ll need:
- the name of the trust
- the trust address and telephone number
- the date the trust was established
- the country where the trust is resident
- details of the trust assets including addresses and values
You’ll also need to provide information about all:
- beneficiaries or class of beneficiaries, where they can be determined
- protectors (if any) and any other person exercising control over the trust
The information needed about each person or organisation occupying that role includes:
- date of birth
- National Insurance number if they’re UK resident, unless a minor
- an address and passport or ID number for non UK residents, if there is no National Insurance Number number
- Unique Tax Reference (UTR) (if an organisation)
If all reasonable steps to obtain the information are unsuccessful (including when a person is deceased) then trustees should use the following information to help identify the settlor or beneficiary.
Date of Birth
If the DOB is not known then enter 01/01/1900.
If the address is not known, we recommend using either the trustees’ or agent’s address, excluding their postcode. The postcode used should be NK1 1NK. This will indicate to HMRC that the address is either not known or no longer exists.
Passport or ID number
If the passport or ID number is not known then use the following information:
Passport or ID card country of issue
Complete this with the most likely relevant country, usually the UK.
Passport or ID card number
Complete this with ‘deceased’ and the year of death, with no spaces. For example, where the settlor died in 1961, you’ll show 31/12/1961.
Passport or ID card expiry date
Complete this with the date of death. If you don’t know the exact date, use 31 December of the year of death, which in this case would be 31/12/1961.
Information required to register a complex estate
- estate: name or title of the estate
- personal representative: name, date of birth, telephone number, email address, address, National Insurance Number, and if National Insurance Number is not available then passport or ID card number and expiry date
- deceased person: name, date of birth, date of death, address, National Insurance Number, and if National Insurance Number is not available then passport or ID card number and expiry date
When can a beneficiary be determined?
Where a beneficiary is named on a trust instrument, separate from members of a named class, then they can clearly be determined and trustees must provide the relevant information.
Where a beneficiary is un-named, being only part of a class of persons, a trustee will only need to disclose the identity of the beneficiary when they receive a financial or non-financial benefit from the trust. This will apply from 26 June 2017; the commencement of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
We want to get an accurate picture of who can benefit from a trust. Some trusts may list named individuals who only become potential beneficiaries contingent upon, for example, the death of a named beneficiary, or in circumstances where there are no remaining named beneficiaries, or beneficiaries in a class of persons. Where this occurs, we’re content that the individuals are listed as a class of beneficiaries, until the contingent event occurs. At that point, the individual potentially stands to benefit and must be named.
A trustee wouldn’t be committing an offence if they could show that they had taken all reasonable steps to obtain the relevant information.
- find out more about the Trusts Registration Service
- you can find more information in the September 2017 HMRC Trusts and Estates Newsletter
- you can also watch a recording of the 8 September 2017 Trust Talking Points meeting
- further information can be found in the latest Agent Update
Making tax easier for trusts and estates with small amounts of savings income
We announced in our April 2016 newsletter the introduction of interim arrangements regarding trustee returns, returns for estates in administration and payments made under informal arrangement. These arrangements only applied for the tax year 2016 to 2017 and did not require notification from trustees or personal representatives dealing with estates in administration where the only source of income was savings interest and the tax liability was below £100.
We’re now extending these interim arrangements to tax years 2017 to 2018 and 2018 to 2019 and will continue to review the situation longer term.
Trusts tax reform consultation
The Chancellor of the Exchequer announced in his Autumn Budget 2017 that the government would publish a consultation in 2018 on how to make the taxation of trusts simpler, fairer and more transparent.
Tax agents and advisers play an important role in helping their clients get their tax returns correct but, as a specialised tax area, many agents do not complete a large number of Trusts and Estate returns.
The Trusts and Estates toolkit is designed to help and support tax agents and advisers for whom trusts and estates is not a significant element of their practice’s work. Other agents may also 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’re completing a Trust and Estate Tax Return.
There is also a supplementary toolkit addressing the areas of possible error regarding Capital Gains Tax risks for trusts and estates 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’re not sure whether Capital Gains Tax applies, use both toolkits.
HMRC also has an Inheritance Tax (IHT) toolkit to assist you with completing IHT Account form IHT400. The toolkit may also 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.
Update on changes to the non-dom rules and offshore trusts
Changes to the rules for long term UK resident non-doms were introduced to Parliament in the Finance Bill in September having previously been delayed due to the June 2017 General Election. The Bill successfully passed through Parliament and received Royal Assent in November.
The new rules will affect:
- non-domiciled individuals (non-doms) who have been resident in the UK for 15 out of the past 20 years
- individuals who were born in the UK with a UK domicile of origin who return to the UK having obtained a domicile of choice elsewhere
- settlors and beneficiaries of overseas trusts
- individuals who become deemed domicile from April 2017 who have overseas assets acquired before 6 April 2017.
The headline change is that long term UK resident non-doms will be deemed domiciled if they had been resident in the UK for 15 out of the previous 20 years. The pre-existing rule for IHT (‘17/20’) has also changed to align with this new rule for income and gains.
There is also a new category of deemed domicile, which applies to current non-doms who were born in the UK and had a UK domicile of origin. In future, they’ll be treated as domiciled while they’re resident in the UK.
For IHT there is a new ‘enveloped property’ rule. This applies if UK residential property is owned by an offshore close company (or partnership) in which a non-dom or trustee is a participator (or partner). The effect is that the shares (or partnership interest) aren’t wholly excluded from the charges to IHT. This rule also applies to loans (and to security for loans) that are made by non-doms, and which are used to acquire, maintain or improve the enveloped UK residential property.
You can read more about the new legislation and the explanatory notes on the Finance Bill: September 2017 legislation and explanatory notes page. The key clauses are 29 to 33 and Schedule 10.
New general guidance to accompany this legislation will be published on the GOV.UK website in January 2018.
Offshore trusts: new anti-avoidance rules
The Finance Bill 2017 to 18 introduced new anti-avoidance rules relating to the taxation of income and gains accruing to offshore trusts. The rules ensure that payments from an offshore trust intended for a UK resident individual do not escape tax when made via an overseas beneficiary or a remittance basis user.