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My PFS - Technical news - 06/06/17

Personal Finance Society news update from 24th May to 6th June 2017.

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Taxation and Trusts

Retirement planning

TAXATION AND TRUSTS

Changes to how trusts are reported to HMRC

(AF1, JO2, RO3)

Form 41G (Trust) has been withdrawn and will be replaced during summer 2017 by a new registration service.

HMRC has now confirmed that the trust registration Form 41G(Trust) has been officially withdrawn in readiness for the launch of HMRC's online registration service for all trusts with a tax liability. This is despite the fact that the online register is not yet up and running - the new system will be introduced in two tranches in June and September.

Taxpayers who were about to submit the Form 41G(Trust) to HMRC have been asked to wait until the online register is ready and the Form will no longer be accepted from the end of April 2007.

This is all part of the new reporting procedures being introduced to implement the EU Fourth Anti-Money Laundering Directive (4AML).

Should Clients Still Consider Nil Rate Band Planning In Their Wills?

(AF1, RO3)

With the ability to transfer the nil rate band and, now, the residence nil rate band, is nil rate band planning in a Will totally redundant?

6 April 2017 saw the introduction of the residence nil rate band, which is broadly available when a 'qualifying' residential interest is 'closely inherited' by lineal descendants on death.

It is, however, important to note that like the standard nil rate band (currently £325,000) the residence nil rate band will also be available for transfer on second death subject to the tapering rules that apply for estates in excess of £2 million.

Since the transferable nil rate band rules came into force in 2007 many married couples have chosen not to make use of the nil rate band on first death. This, we believe, is primarily because if it is available for transfer (note the transferable nil rate band applies to the nil rate band applying on second death) then it can be used on second death subject, of course, to a claim being made by the personal representatives within two years of the second death. For other cases, especially those which involve more complicated family affairs, use of the nil rate band was still made on first death.

Now, with the introduction of a residence nil rate band, is there a further argument to possibly make use of the nil rate band on first death? Well, as with all cases, client circumstances would need to be fully considered.  Below we provide an overview of circumstances in which clients may wish to consider such planning.

To make use of a previously deceased spouse's nil rate band

If a widow/er remarries having inherited everything from their first spouse, then they may wish to draft their own Will to make use of their own nil rate band plus that of a previous spouse. This is primarily because if they die first leaving all their assets to their 'new' spouse then they will have lost the ability to claim their deceased spouse's nil rate band and possibly the residence nil rate band (RNRB).

In second/subsequent relationship situations

Modern day families come in all shapes and sizes therefore, for some, they may require the certainty that assets are left to particular people, for example children and/or grandchildren from a previous relationship/marriage.

To hold a high growth value asset

If assets have a high growth potential (for example, land with potential planning permission) then it may be better placing such assets into trust on first death to prevent increasing the estate of a surviving spouse for inheritance tax purposes.

To capture BPR/APR assets relief

If, say, all assets are left to a surviving spouse on first death then the availability of IHT business property relief or agricultural property relief could be wasted as the assets will pass exempt from IHT to the spouse. In these cases it may be worth executing a Will to pass such assets into trust or in favour of a particular (non-exempt) beneficiary to prevent losing out on the relief.

To keep the estate of the survivor under the RNRB taper threshold

In cases where the estate, on either first or second death, is in excess of the £2m (taper threshold), the amount of the RNRB that would otherwise be available will be restricted by £1 for every £2 by which the estate exceeds £2m. So, for example, if on first death the estate is worth £2.2m the RNRB will be reduced by £100,000. If, however, the Will was drafted to, say, leave the nil rate band of £325,000 into trust, then the total estate on first death would be £1,875,000 which would then not be affected by the taper threshold.

These are just a few points to be aware of when advising clients - of course, in reality all will depend on overall objectives and circumstances, however, as always wills should be reviewed regularly (say, every 5 years) to ensure that they meet the desired outcome.

PENSIONS

SSAS caught by master trust legislation

(AF3, FA2, JO5, RO4, RO8)

The Pension Schemes Act 2017 introduces a definition of 'master trust' and those schemes deemed a master trust have onerous reporting requirements and need to be registered with The Pensions Regulator by October 2017.

A master trust is defined as an occupational pension scheme that:

  • provides money purchase benefits
  • is used, or intended to be used, by two or more employers
  • is not used, or intended to be used, only by employers which are connected with each other
  • is not a public service pension scheme

In most cases a SSAS cannot be classified as a master trust but where a SSAS has more than one sponsoring employer it may inadvertently become a master trust if the employers don't meet the 'connected' definition. This is where the issue really lies. The definition of 'connected' only covers employers who are subsidiary employers and not ones that share the same board members. This inadvertently means where the two employers are running separate companies but those running the company are actually the same people they would be deemed unconnected and hence caught by the master trust definition.

Implementing information prompts in the annuity market, ps17/12 released

(AF3, FA2, JO5, RO4, RO8)

In November 2016 the FCA published a consultation paper (CP16/37) requiring annuity providers to show customers best rates in market.  The FCA requested views on proposed amendments to rules in relation to the purchase of products that provide consumers with guaranteed income in retirement (pension annuities). The changes would require firms to inform consumers how much they could gain from shopping around and switching provider before a potential annuity purchase.

The FCA have now released the feedback on CP16/37 and final rules in implementing information prompts in the annuity market, PS17/12.

Based on the feedback to the consultation, following changes have been made to the final rules compared to those consulted upon:

  • inclusion of a clear and prominent warning about enhanced annuities;
  • firms engaging with consumers over the telephone will only have to provide the information prompt in relation to the specific guaranteed quote that a consumer has indicated they would like to proceed with; and
  • implementation date moved from 1 September 2017 to 1 March 2018.

Continued uncertainty for Scottish property held within a pension fund.

(AF3, FA2, JO5, RO4, RO8)

The devolution of the taxation of the United Kingdom continues to cause issues with pensions. HMRC do not levy stamp duty charges on in specie transfer between pension providers meaning should a client want to move providers they are not hit by an unfair additional tax charge.

However, Revenue Scotland do not provide a similar exemption for the equivalent tax charge for properties in Scotland. This charge, the Land and Buildings Transaction Tax (LBTT) came into being in 2015 but it was only last year that it has the impact of the change on pensions become apparent.

Revenue Scotland issued a Technical Bulletin in October 2016 which states:

"We have considered the application of LBTT legislation to pension fund in specie transfers and have concluded that generally such transfers give rise to an LBTT liability, on the basis that

(a) such a transfer is a land transaction and

(b) the assumption of the liability by the receiving pension fund is debt as consideration.

We are aware that HMRC has longstanding guidance that land transactions involving in specie transfers between pension funds are not chargeable to SDLT. We understand that there is concern, because of the HMRC position.

If you are unsure about the application of the legislation to the circumstances of a specific transaction, you may wish to ask for a Revenue Scotland Opinion."

Unfortunately multiple representations to Revenue Scotland hasn't convinced them that this is an unfair tax even where the underlying beneficiary isn't changing. There is hope on the horizon that bare trusts may be exempt from this charge but not many pension schemes would fall into this category because of the discretionary nature of the trusts.

Further clarification is expected from Revenue Scotland soon although it isn't expected to provide any real changes.

The majority of the reporting requirements will be irrelevant for SSAS so if possible those with multi-employer SSAS may wish to disassociate one of the employers from the scheme.

Representations have been made to the Pensions Regulator to see what can be done to avoid any unintended consequences of the legislation.

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