Molatof!  More information on the Trusts Register

HMRC are now introducing an online registration process, in order both to streamline its function, as well as to comply with new anti-money-laundering legislation – called the Money Laundering Terrorist Financing and Transfer of Funds Regulations 2017 (Molatof, anyone?)

Trustees have an obligation to keep good records and accounts, not only for beneficiaries, but also for the Inland Revenue (HMRC).

Until recently, trustees did not have to supply details to the Inland Revenue of who was going to receive money from a trust – but this has changed.

Trustees have always been under an obligation to report income and gains, as well as reporting on the 10 year anniversary Inheritance Tax charge – if you are a trustee and you think you may not have failed to keep up to date, then your solicitor or accountant can help you keep on track, with a “trusts checkup”.

HMRC are now introducing an online registration process, in order both to streamline its function, as well as to comply with new anti-money-laundering legislation – called the Money Laundering Terrorist Financing and Transfer of Funds Regulations 2017 (Molatof, anyone?).  HMRC issued a newsletter about the upcoming changes in April – and suggested that the system would be online this month.  The Molatof regulations were published today, and it seems that it will be a few more weeks whilst HMRC tests the system to see whether it is working correctly.

The Molatof regulations mean that not only do trustees have to supply their details, but also they have to supply the names of beneficiaries and how they benefit – and in addition to their names, will also ask for National Insurance Numbers – and if a National Insurance Number is not available, addresses and passport details may be required.

HMRC have set themselves a deadline of the system going live by 5th October 2017 – for all trusts which have a tax consequence, information on the existence of the trust must be provided on or before 31 January 2018

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Day -v- Harris [2013], Curnock v IRC, Phizackerley

Just a quick reminder to myself that these are the current cases concerned the ability of attorneys to make valid gifts, and the interaction with IHT.

Day -v- Harris 2013 Day v Harris and others Same v Royal College of Music and another (Arnold and another, interpleader claimants) [2013] EWCA Civ 191; [2013] WLR (D) 112 and PDF of judgment concerns a registered EPA – and gifts made by the attorney (who was also a joint holder of a bank account) and whether the gifts that he had made were as attorney for the donor, or in another capacity as being access to the joint bank account as was his right as a joint bank account signatory

In my judgment, it remained open to Mr Day to operate the bank account after registration of the EPA as he had done before such registration. He could not use it to benefit himself without the full, free and informed consent of Sir Malcolm but, if he had that consent, as the judge held he did, gifts made by drawing cheques on the joint account were not invalidated by the effect of section 7(1)(c) of the Act even though made after registration of the EPA.

Had the gifts not been validly made, then they were still part of the donor’s estate for IHT purposes – on the basis of Curnock v IRC, Curnock v IRC [2003] SWTI 1053 where a cheque was not encashed prior to the death of the donor – and therefore the gift was not complete by the time of death.  This could also be seen in conjunction with Phizackerley, Personal Representatives of Phizackerley v HMRC [2007] SpC 591

An earlier version of Day -v- Harris, in 2010 concerned the nature of the accounting to be made for the researches of the executor into the amount of the gifts that were made and how far back the executor should go in attempting to ascertain what gifts had been made, and whether the expenses of the executor in doing so were reasonable.

Residential Nil Rate Band – downsizing calculations

PDF The draft clauses dealing with the downsizing element of the new RNRB are out today.

The RNRB is available from 6 April 2017 and the relief for downsizing or disposals will apply for deaths after that date where the disposal occurred on or after 8 July 2015.

So, working out, with the aid of a cold towel, what the calculations might actually mean is going to be important – particularly if this is potentially an area where not only the estate planning department need to know what they are talking about, but need to find a way of recording the information through the conveyancing department for most residential property sales that took place since the summer, where it is anticipated that the clients have a total estate value exceeding £650,000 (or £325,000 for non married persons).

I hope Professor Lesley King will do another talk with worked examples – that would help.

Budget 2015 and initial thoughts.

Budget statement in pdf from Inland Revenue

Some of the things I think this means.

Terms:

Although this refers to a “main residence nil rate band” the personal representatives can elect for any property owned and lived in by the deceased to count as the residence for this purpose.  The term is not related to the main residence or Principal Private Residence.  Potentially, each spouse could have a separate private residence, therefore.

The residence nil rate band (which if someone else has not already labelled it thus, I shall call it the “RNRB”) can be transferred to a spouse and remain intact.  This applies no matter when the first death occurs, so long as the second death occurs after the start of the tax year 2017-18.

The RNRB might end up, therefore, also being called the TRNRB when claimed on the death of the second spouse. There will be new additional forms to complete in addition to the IHT402 and the IHT217.  There will need to be new evidential burdens to show that a recipient falls within the class of acceptable beneficiaries called “descendants”.

The NRB as we know and love it applies at the current rate until the tax year 2021-2 commences.  It applies to all transfers whether intervivos or on death.

The RNRB applies only where there is a residential property in which the deceased has resided (or the spouse of the deceased???) and where the “proceeds of sale of that property” or the property itself pass to a linear descendant of the deceased (or of the deceased’s former spouse??).  The bits in brackets are where I am less certain of the detail.  One thing is clear – the definition of what is considered “linear descendants” is different from the standard definition of “issue” or “bloodline” since it includes not only the usual adopted children and children of the bloodline but also step children and foster children.

Things I am not sure about:

I don’t understand quite how you can quantify the foster children – but perhaps it is possible to prove that an individual is a foster child or has been one at any date.  Similarly, step children.  But then again, this gives an allowance for those children, rather than penalising them or giving them an entitlement.

I am not sure about the “proceeds of sale” aspect of things.  The Inland Revenue states that identifying what has been the proceeds of sale of a family home and making sure that there is a credit for this will be something that will be the subject of a consultation paper shortly.  Presumably, there is some paperwork required for Inheritance Tax purposes on the sale of a family home – so where downsizing from any home worth less than £2,400,000 is potentially eligible for this – so as to preserve the relief on this home.  This will be something that all conveyancing solicitors will need to know about as well, since otherwise it would not be something that would be mentioned to the client.  Few clients associate the sale of their home with the need to consider how it fits in with estate planning.

Does this now mean that flexible life interest trusts now need to be altered so as to take account of this potential future relief?  A “FLIT” by which I mean a discretionary trust, subject to a prior life interest.  I think it does.  Because the whole flexibility of these relies on the discretionary trust *not* being an individual or descendant.  Time to review these I think, and adjust expectations and drafting accordingly.

I think the new legislation means that (at least initially) if you are worth £2.4 million or more, then this RNRB is useless to you.

I also think this means that if you are selling up so that you can free up capital to make potentially exempt transfers, then you have to weigh up carefully whether doing so means that you will lose out on the RNRB.  The RNRB *only* applies on death, and does not apply to PETS that become chargeable.  Worst case scenario is that you free up funds, give some away to your children and do not survive the seven years.  When I say “some”, I mean if you give away more than one Nil Rate Band’s worth of gifts.  So – PETs will have to be limited to below £325,000 for each individual donor if they are within 7 years of death, or statistically likely to be so.  Or in other words, there is no such limitation, but without advice on the pros and cons, the decision should not be taken without, for example, more seriously considering term life insurance, in the very least.

 

In conclusion:

Possibilities of legal involvement in people’s affairs seem to have increased.  And in a way that doesn’t seem right – why should the taxpayer be hemmed in at every turn?  Why not just increase the whole of the NRB to £500,000 each – and not have this extra complication?  What about those childless couples who want to leave their money to nieces and nephews?  Why is this budget not making it easier for the rich to pay tax, rather than harder for the middle income people to manage the burden of it?  This extra complexity just means more work for the civil servants, more bad luck for the childless, more work for lawyers, more fees for professional advice.   And the extra complexity is not actually needed – it doesn’t close any major loopholes or planning issues where “clever lawyers/accountants” have been finding “loopholes”.

The law’s delay…

On telephoning the Inland Revenue to find out the progress of my P1001, signed and sent back to them over a month ago, I am told that they are currently experiencing a postal backlog of FOURTEEN WEEKS!

Since the P1001 authorises me to speak to the Inland Revenue on behalf of the Personal Representative, who, quite understandably is grieving and has instructed me to deal with the estate on his behalf – I cannot communicate effectively with them.

A reply will be expected in September, by which time I might have finished the (rest of the) administration with some time to spare…