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Taxation and trusts update: Entrepreneurs’ Relief, Law of succession and more

Technical article

Publication date:

16 June 2020

Last updated:

16 June 2020


Technical Connection

Update from 28 May 2020 to 10 June 2020

Taxation and trusts 



Changes to Entrepreneurs’ Relief – An update

(AF2, JO3)

In the 2020 Budget (anyone remember that?) the Chancellor announced key changes to entrepreneurs’ relief which are likely to have a significant impact on the number of individuals/shareholders benefiting from the relief.

The main change was that the lifetime limit reduced from £10m to £1m for qualifying disposals made on or after 11 March 2020.

There are no transitional provisions. The new rules also provide that the lifetime limit must take into account the value of entrepreneurs’ relief claimed in respect of qualifying gains in the past.

And entrepreneurs’ relief is to be renamed ‘business asset disposal relief’ from the tax year 2020/21.

In addition, a couple of anti-avoidance measures were introduced:

  • Normally, a disposal is treated as having been made on the date the contract is made, and not, if later, the date on which the asset is actually conveyed or transferred (section 28 of TCGA 1992) - unless the contract was conditional in which case the disposal date might be the date the condition was satisfied. So, you might imagine that where the contract was made before 11 March 2020, and was unconditional, the disposal would benefit from the £10m lifetime cap.

However, under the first anti-avoidance measure announced on Budget day, contracts made (i.e. disposals made) before 11 March that had not been completed before 11 March could be caught by the lower £1m lifetime cap unless:

  1. The parties to the contract demonstrate that they did not enter into the contract with a purpose of obtaining a tax advantage by reason of the timing rule in section 28 of TCGA 1992; and
  1. Where the parties to the contract are connected, that the contract was entered into for wholly commercial reasons.

So, broadly, this is an anti-forestalling provision intended to counter arrangements where a disposal was engineered to take place before the Budget announcement, for example by a contract being put in place before a genuine buyer had been found, to lock-in the higher £10m pre-Budget lifetime cap.

However, if a genuine contract made (disposal made) for commercial reasons had merely been accelerated in order to be in place before Budget day the higher £10m pre-Budget lifetime cap should still be available.

  • Also, normally, where shares have been exchanged for those in another company, the new shares effectively stand in the shoes of the original holding, and there won’t be a disposal until the replacement shares are sold, at perhaps a much later date. As this might be at a time when they might not be entitled to the relief, a shareholder can elect (under section 169Q TCGA 1992) to instead crystallise the gain on their old shares and pay the tax on the gain (with the benefit of entrepreneurs’ relief) rather than defer the gain.

However, under the second anti-avoidance measure announced on Budget day, where shares have been exchanged for those in another company on or after 6 April 2019 but before 11 March 2020, and:

  • both companies are owned or controlled by substantially the same persons, or
  • persons who held shares in company A hold a greater percentage of shares in company B than they did in company A and, on 11 March 2020, the personal company test, the trading company test and the employee/officer test are met in respect of company B,

then if an election is made under section 169Q TCGA 1992 on or after 11 March 2020, the share disposal (i.e. the disposal of the original shares) is to be treated as taking place at the time of the election for entrepreneurs' relief purposes, i.e. on or after 11 March 2020, meaning that the new lifetime cap of £1m will apply. 

A section 169Q TCGA 1992 election might be required because the shareholder holds less than 5% of the new shares. So, in certain circumstances, this anti-forestalling provision will mean that the new lower lifetime cap of £1m will apply as a result of the election, rather than the £10m cap in force at the time of the actual exchange or reorganisation, if the election had not actually been made before Budget day. 

The Chartered Institute of Taxation (CIOT)’s concerns include:

  1. There are no transitional provisions. This is striking as capital gains tax changes are inevitably retroactive, affecting gains that have already accrued but have not yet been realised, and investment decisions that have already been made. The draft legislation draws the line; those one side of it have the full benefit of the old £10m limit and those the other side have the new £1m limit.
  1. The line drawn is complicated by the two sets of anti-forestalling provisions. It is striking to have strong anti-forestalling measures for what is in essence a change of policy rather than anti-avoidance legislation.
  1. One difficulty for taxpayers who have legitimately taken advantage of reliefs is uncertainty about when the rules for a particular relief might change. There will be people affected by this change who have reinvested money in the expectation of a relief that they will no longer receive. Such ‘retroactive’ effects are inevitable in a capital gains tax system. A transparent process of evaluation, conducted as an open consultation or public call for evidence, would have allowed taxpayers some indication of the direction of travel as a background to their investment decisions and reasonable expectations in the lead up to the Budget.
  1. In relation to the second anti-avoidance measure covered above, the CIOT points out that some taxpayers who have never known or thought about this change in law or tried to forestall it, and who completed commercial reorganisations prior to Budget day will be caught by this as normally these elections are only filed after the event, with the tax return. Consequently, at Budget day, taxpayers would not reasonably have expected to have yet made an election because they would have waited until making the 2019/20 return - due by 31 January 2021.
  • The CIOT has identified two categories that may be adversely affected by the exchange of shares anti-forestalling measure in ways that appear contrary to wider Government policy. This anti-forestalling provision potentially also affects management buyouts by key employees and family successions. In both cases where, immediately after the share exchange, the shareholder’s minority holding no longer qualifies for entrepreneurs’ relief (or they have fully disposed of their shares) it is very likely they would have made an election, irrespective of the change in lifetime limit, albeit the election would not have been made until the completion of the 2019/20 tax return in accordance with usual practice.
  • The CIOT suggest this could be largely addressed by a relatively straightforward amendment to the Finance Bill incorporating a simple test of whether the seller qualified for entrepreneurs’ relief immediately post exchange. If the seller did not so qualify, the election could still be made post 11 March with the £10m lifetime limit preserved.
  • In cases where a minority shareholding immediately post exchange still qualifies for entrepreneurs’ relief, but might not do so later for reasons outside their control, perhaps because of ill-health forcing retirement, the shareholding being diluted by further share issues to employees or the company ceasing to trade (possibly because of the current crisis), it is likely that an election in the extended period would similarly have been made regardless of the change in the lifetime limit. In this case, the CIOT says that it recognises that the motive for making the election is more challenging to test and formulate than in respect of a non-qualifying holding. It suggests that a ‘rough and ready’ statutory test might be based on conditions that the new holding is below 10% and that it had been reduced by at least a half compared to the old stake in the target company. 

Source: CIOT Technical News: CIOT News: CIOT comments on Finance Bill 2020 Clause 22 Schedule 2 on Entrepreneurs Relief – 13 May 2020

Husband penalised due to wife claiming child benefit

(AF1, RO3)

In the recent case of Ramsdale v HMRC, 2020 UKFTT 155 TC, Mr Ramsdale chose to appeal against penalties imposed by HMRC for failure to notify his liability to the High Income Child Benefit Charge (HICBC) due to not knowing that his wife was claiming the benefit.

An individual may be liable to the HICBC if they, or their spouse, civil partner or partner (who is not married but who is living with them), has an adjusted net income of £50,000 or more and one of them receives child benefit. If both have an income of £50,000 or more, the charge will apply solely to the partner with the highest income. (The amount of the charge is a 1% deduction of the amount of child benefit for every £100 of income which exceeds £50,000, so that where adjusted net income exceeds £60,000, the HICBC will be equal to the full amount of the child benefit, i.e. 10,000/100 = 100%.) In the case in question, Mr Ramsdale had an adjusted net income in each tax year in question which exceeded £50,000. His income also exceeded that of his wife.

From a tax perspective, where a liability to the HICBC arises in any tax year, the individual who is subject to the charge must notify HMRC of a liability to income tax.

Mr Ramsdale was taxed under PAYE and had not ever needed to complete and submit a self-assessment tax return. However, after introduction of the HICBC, HMRC had written to various taxpayers who were taxed under PAYE and who may be affected by the charge. Mr Ramsdale said he never received the initial letter. A subsequent letter was sent, entitled ‘Final Reminder: important information about the High Income Child Benefit Charge’. On receipt of this letter Mr Ramsdale replied as follows:

‘As far as I am aware we have not received child benefits for a long time due to my higher rate earnings. Therefore I donʼt think this request applies to me.’

HMRC subsequently wrote back to Mr Ramsdale to say that, according to the records held, either Mr Ramsdale or someone in his household was claiming child benefit.

HMRC made assessments amounting to £5,120 and penalties of £333.20 which related to tax years 2012/13 to 2016/17 inclusive.

The evidence (taken from the case notes) put forward by Mr Ramsdale can be summarised as follows:

“(1)     Neither he nor his wife were aware that the HICBC had been introduced in 2012–13 and did not becomes aware of it until Mr Ramsdale received HMRCʼs letter dated 22 October 2018.

(2)       He was not aware that his wife was receiving child benefit. The child benefit was not paid into a joint account which he uses to pay bills, but to an account in the name of his wife.

(3)       He is taxed under PAYE and has never been asked to complete a self-assessment return and did not realise he needed to do so.

(4)       As soon as he became aware of the liability he provided details of his income and child benefit received.

(5)       In all the circumstances the penalties are unfair.”

However, while Mr Ramsdale had an honest and genuine belief from 2013 until October 2018 that neither he nor his wife were in receipt of child benefit, the Court held that there was a lot of publicly held information and media coverage regarding introduction of the HICBC.

In addition, given that Mr Ramsdale was aware that his wife had claimed child benefit at some stage not only did he appear not to have discussed the matter with his wife but it was also unclear as to why he believed she had stopped claiming the benefit. As a result, the appeal was dismissed.

This case highlights the importance of not only understanding one’s tax obligations but also that even in cases where the taxpayer genuinely believes they have a reasonable excuse being able to prove this in practice can be extremely difficult.

In the current COVID-19 crisis, it is likely that some taxpayers who have opted out of claiming child benefit in the past because their adjusted net income was too high, should now restart child benefit because their adjusted net income for 2020/21 will be under £60,000. Anyone on the Coronavirus Job Retention Scheme with its £2,500 maximum monthly payment should certainly check the situation.

The sooner action is taken, the better, as the maximum period for backdating child benefit is three months. The deadline for a full 12 months’ payment in the current tax year is, therefore, 5 July 2020. 

Source: FTT: Ramsdale v HMRC, 2020 UKFTT 155 TC – 30 March 2020.

The Scottish Government’s response to the consultation on the law of succession

(AF1, JO2, RO3)

The response to the consultation on the law of succession issued by the Scottish Government, focusing on how an estate should be split and the provisions for a surviving spouse/civil partner and children where there is no Will in place, was published on 20 May.

The Scottish Government had issued the consultation in February 2019 seeking for views on the following:

  1. Alternative approaches to the current rules on intestacy provisions for surviving spouse/civil partner and children;
  1. Views on the rights of cohabitants on intestacy;
  1. Views on whether step-children should have the same rights as biological or adopted children;

At the same time, views were sought on the following matters:

  1. Whether a murderer should continue to be able to act as executor in their victim's estate;
  1. The time limit for temporary aliment (regular maintenance payments);
  1. Information publicly available after a grant of confirmation;
  1. The value of the small estates limit;
  1. Equitable compensation; and
  1. Timeshare contracts which purport to continue in perpetuity.

The Scottish Government has now published its response.

There were 59 responses from various individuals, including some from the legal profession, and the majority consensus on the points above in order was:

  1. An agreement that the current approach to intestate succession needs to be reformed. However, there was no clear picture of what this should look like.
  1. The majority thought that cohabitants should still apply to the courts to obtain financial provision and that a marriage and a civil partnership should have greater recognition in an intestate estate.
  1. There was no mention of the issue regarding the rights of step-children in the response summary.
  1. A person convicted of murder/culpable homicide should not be allowed to be executor to their victim's estate.
  1. There should be a time limit for claims of temporary aliment.
  1. Personal data publicly available with a grant of confirmation causes difficulty for beneficiaries, executors, the deceased's family and others.
  1. The small estates limit should be reviewed.
  1. No mention of this point in the summary.
  1. No mention of this point in the summary.

Next Steps

The Scottish Government commented as follows:

“We will seek, therefore, to explore whether the views of the wider general public regarding intestate succession can be better understood. We will look at ways to facilitate or carry out research and analysis that can be used to inform future reform on this matter. Understanding the presumed intent of the general testator will help to form a pathway for any future reform.

As part of an earlier consultation process, we committed to legislating in order that, when an intestate deceased is survived by a spouse or civil partner and no children, the survivor inherits the whole estate. We remain committed and will make the necessary changes at the next legislative opportunity.

We will consider further how to take forward reforms on the discrete issues (outlined above) for which there was a measure of consensus among respondents. Where required, this will be undertaken at the next legislative opportunity. In addition, we will look at the issue of consulting on the prior right thresholds.”

The reform of succession law in Scotland has been going on since 2009. After the first set of consultations, the Succession (Scotland) Act 2016 introduced certain technical changes to the law and clarified certain provisions in the light of the then recent case law. While legal professionals continue to consult and discuss with the Government it should be noted that the length of time that these reforms have already been ongoing, and the fact that there is no set timeline for the introduction of legislation dealing with the issues, merely confirms that the only sensible way for any individual to ensure that their wishes are carried out after their death is to ensure that they have a valid Will or make use of trusts where appropriate.

Source: Scottish Government response to consultation on the law of succession: – dated 19th May 2020.

Update on the Trust Registration Service (TRS) and 5MLD

(AF1, JO2, RO3)

With little progress on the expansion of the TRS to comply with 5MLD, the European Commission has launched enforcement action.

Whilst most of the EU’s Fifth Money Laundering Directive (5MLD) provisions were transposed into UK law in January 2020 (the Money Laundering and Terrorist Financing (Amendment) Regulations 2019), the provisions relating to trust registration (in effect expanding the Register to cover more trusts than currently) have been delayed until later in 2020, following a more detailed technical consultation on implementation.

Although the Consultation ended on 21 February, there has been no news on any final proposals to complete this project. According to the HMRC website, it is analysing the feedback. 

However, last month, HMRC announced that the first element of the “new TRS” had been released, allowing details of trusts already registered to be updated. HMRC says that the new TRS will provide more functionality and a better user experience than the current service.

The new updating function is available to agents but involves additional authorisation steps, including a trustee setting up a digital tax account for the trust and confirming the agent authority digitally. 

There have been lengthy discussions between the professional bodies and HMRC about the difficulties that ‘digital handshakes’ by clients in HMRC digital services create but, as yet, there is no resolution. However, for the trust registration service the digital handshake to authorise the agent is required.

The current system to register a new trust remains unchanged, but the new service to register trusts is available for a private trial. 

The UK is not the only country to lag behind with the implementation of 5MLD.

The European Commission (EC) has now launched enforcement action against more than half of the EU's Member States for failing to fully transpose 5MLD into their national law by the 10 January 2020 deadline.

Alongside the UK, eight Member States – Austria, Belgium, the Czech Republic, Estonia, Greece, Ireland, Luxembourg and Poland – recently received letters of formal notice, warning them that they have only partially transposed 5MLD.

Eight others have already had such letters because they have not implemented any 5MLD measures at all; they are Cyprus, Hungary, the Netherlands, Portugal, Romania, Slovakia, Slovenia and Spain.

Any state that fails to provide a satisfactory response to the EC’s latest letters within four months may be put into the next stage of the enforcement process, under which the EC sends out 'reasoned opinions'.

Although the UK has agreed to implement 5MLD regardless of Brexit, it is difficult to forecast anything in the current circumstances. Clearly, however, work on the expanded TRS continues and we hope to have more news from HMRC on this soon. 


  • ICAEW News: The first element of HMRC’s new trust registration service has been released, allowing details of trusts already registered to be updated – 1 May 2020;
  • STEP News: Seventeen countries fail to implement EU 5AMLD - 18 May 2020.

New fuel rates for company cars

(AF2, JO3)

HMRC has announced the new fuel rates for company cars applicable to all journeys from 1 June 2020 until further notice.

The rates per mile are based on fuel prices and adjusted miles per gallon figures.

For one month from the date of the change, employers may use either the previous or the latest rates. They may make or require supplementary payments, but are under no obligation to do either. Hybrid cars are treated as either petrol or diesel cars for this purpose.

Rates from 1 June 2020:

Engine size



Engine size


1,400 cc or less



1,600 or less


1,401cc to 2,000cc



1,601cc to 2,000cc


Over 2,000cc



Over 2,000cc


Source: HMRC Guidance: HMRC Guidance: Advisory Fuel Rates – dated 26 May 2020.

Updated SDLT guidance – Will you still be eligible for a refund?

HMRC has recently updated it guidance on the Higher Rate of Stamp Duty Land Tax (SDLT).

Broadly, an individual must pay the higher SDLT rates when they buy a residential property (or a part of one) for £40,000 or more, if all the following apply:

  • it will not be the only residential property worth £40,000 or more that they own (or part own) anywhere in the world;
  • they have not sold or given away their previous main home;
  • no one else has a lease on the property which has more than 21 years left to run.

In cases where an individual owns another property (say a buy-to-let) but is in fact replacing their main residence, ordinarily the higher rates of SDLT would not apply. However, if they have not yet sold their previous main residence, they would be required to pay the higher rates of SDLT but would have the ability to apply for a refund provided they sell their previous main residence within three years. HMRC’s guidance has been updated to state that if individuals purchased their new (replacement) home on or after 1 January 2017 and have been unable to sell their previous home within three years they may still be able to apply for a refund. In order to be able to get the refund, the delay in selling must be because of reasons outside of the individual’s control.

The reasons can include, but are not limited to:

  • the impact of coronavirus (COVID-19) preventing the sale;
  • an action taken by a public authority preventing the sale.

Once the reason has ended, individuals must sell their previous home in order to be able to apply for the refund.

The higher rates of SDLT can impose a significant upfront payment for those who have not sold their previous home, with some needing to borrow further funds to pay the extra charge. This updated guidance will no doubt be welcomed by those who have been unable to sell their previous home due to reasons which have been outside their control.

Coronavirus: New guidance on share plans

(AF1, RO3)

HMRC’s latest ‘Employment related securities bulletin’ provides guidance and information relating to employee share schemes in light of the coronavirus outbreak.

Save As You Earn (SAYE)

Where participants are unable to contribute because they’re furloughed or on unpaid leave during the coronavirus pandemic, HMRC will extend the payment holiday terms.

The current prospectus already allows employees to delay the payment of monthly contributions by up to 12 occasions in total. This is without causing the savings contract to be cancelled. HMRC says that it will allow contributions to be postponed for a longer period where the additional months are missed due to coronavirus.

Payments of Coronavirus Job Retention Scheme (CJRS) to employees furloughed during the coronavirus pandemic can constitute a salary and SAYE contributions can continue to be deducted from CJRS payments.

Any temporary postponement of contributions will put back the three or five-year maturity date by the total number of months missed, including any additional months missed as a result of the impact of coronavirus.

Below is a working example in steps.

  1. A five-year SAYE contract entered into on 1 January 2016. The maturity date is 31 December 2020.
  1. In 2018 the participant temporarily paused contributions from 1 January 2018 to 30 June 2018 with them starting again on 1 July 2018.
  1. In 2019 there was a further temporary postponement of three months.
  1. As of March 2020, there was a total of nine months temporary postponement. This would result in a delay of the maturity date to 30 September 2021.
  1. A further temporary postponement due to coronavirus commences on 1 April 2020. The participant then re-starts payments in September 2020.
  1. The total months where contributions have been temporarily postponed is 14 months. Although this exceeds the current 12 months permitted, the additional two months were due to coronavirus and HMRC allows for this. This delays the maturity date of the contract to 28 February 2022.

HMRC will update the Specimen SAYE Prospectus from 10 June 2020 to show that monthly contributions can be postponed in excess of 12 months, where those additional months are missed due to coronavirus. And it will update the guidance in the Employee Tax Advantaged Share Scheme User Manual at ETASSUM34140 to reflect the changes.

New SAYE contracts do not need to be issued for contracts that started before 10 June 2020.

All employees with a savings contract in place on 10 June 2020 can delay the payment of monthly contributions, beyond 12 months, where those additional months are due to coronavirus.

For participants who find themselves unable to make monthly contributions from their salary, due to having to take unpaid leave during the coronavirus pandemic, HMRC will permit payments to be made via standing order. HMRC says that it will update the guidance at ETASSUM34120 to reflect this, adding that deductions from salary should recommence at the earliest opportunity.

The Share Incentive Plan (SIP)

Payments of CJRS to employees furloughed during the coronavirus pandemic can constitute a salary and SIP contributions can continue to be deducted from CJRS payments.

SIP participants are already permitted to stop their deductions from their salary.

Participants will not be allowed to make up missed deductions if they stop due to coronavirus.

Further guidance can be found at ETASSUM24330.

Company Share Option Plans (CSOP)

HMRC accepts that where employees and full-time directors, now furloughed because of coronavirus, have been granted options before coronavirus, those options will remain qualifying on the basis they were full-time directors and qualifying employees at the time of grant.

You can find guidance on what constitutes full-time at ETASSUM42130.

The Enterprise Management Incentive scheme (EMI)

HMRC says that it is exploring issues raised by stakeholders in relation to coronavirus and the EMI scheme, and will provide updates as soon as possible.

On valuations, it accepts that coronavirus may lead to situations where there have been delays in granting EMI options which takes people over the 90-day period limit. (When EMI options are ready to be granted it’s possible to contact HMRC and agree an appropriate valuation. Where valuations are agreed by HMRC the options currently need to be granted within 90 days.)

It has said that, provided there has been no change that may affect an appropriate value then:

  • any EMI valuation agreement letters already issued, where the 90 days expires on or after the 1 March 2020, can be automatically treated as being extended by a period of 30 days;
  • any new EMI valuation agreement letter issued on or after 1 March 2020 will be valid for 120 days.

Also, note that in its March 2020 Budget, the Government announced a review of the EMI scheme “…to ensure it provides support for high-growth companies to recruit and retain the best talent so they can scale up effectively, and examine whether more companies should be able to access the scheme.” The Government has previously carried out a number of reviews of the EMI scheme.

Deadlines for registration of new schemes and filing of returns

HMRC recognises that some employers and agents may struggle to meet their employment related securities tax obligations due to coronavirus, and it will consider coronavirus as a reasonable excuse for missing some tax obligations. HMRC says an explanation should be included in any appeal and it has referred people to the latest guidance on disagreeing with a tax decision

Source: HMRC Guidance: Employment Related Securities Bulletin 35 (June 2020) – dated 8 June 2020.

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This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.


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