Personal Finance Society news update from 24th May to 6th June
Taxation and Trusts
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Form 41G (Trust) has been withdrawn and will be replaced during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41G(Trust) has been officially withdrawn in readiness for the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
Should Clients Still Consider Nil Rate Band Planning In
With the ability to transfer the nil rate band and, now, the
residence nil rate band, is nil rate band planning in a Will
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
To make use of a previously deceased spouse's nil rate
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
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
To keep the estate of the survivor under the RNRB taper
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
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.
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
- 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,
(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
Based on the feedback to the consultation, following changes
have been made to the final rules compared to those consulted
- inclusion of a clear and prominent warning about enhanced
- 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
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
"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
(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