The full text of the Bill to implement the Government’s plans to reform the law on making lasting powers of attorney (LPAs) in England and Wales has been published and has received its second reading in Parliament.

In previous bulletins we have reported on the modernisation of LPAs, focusing mainly on the idea of creating a digital service to process LPAs. Following the consultation last year, a Private Member’s Bill was introduced by Stephen Metcalfe MP which has been published recently.

The Powers of Attorney Bill will allow the following:

1. Allow regulations to provide for different ways to make an LPA depending on whether this is done digitally or on paper, or a mix of the two.
2. Ensure only the donor can apply to register the LPA.
3. Provide for regulations to set out identity verification requirements that must be met for an application to register an LPA to be accepted.
4. Require the Office of the Public Guardian to notify the parties when an application to register an LPA is complete and the registration process is starting.
5. Enable the Office of the Public Guardian to operate a triage system for certain types of objection.
6. Widen the group of people who can lodge an objection, so that it includes third parties not named in the LPA.
7. Provide for new forms of evidence of the LPA to be created and accepted and for the electronic form of the LPA as registered to be evidence of the LPA.

The Bill will further amend s.3 of the Powers of Attorney Act 1971 to enable chartered legal executives to certify copies of powers of attorney. Currently, certified copies can be signed only by the donor, a solicitor, a notary or a stockbroker.

The Bill will be scrutinised to ensure that the moves to secure the benefits of digitalisation do not inadvertently exclude any of those who might benefit from being able to execute an LPA. 

Comment

Making LPAs easier to create, and modernising the way in which individuals can access the service, may encourage more people to think about creating an LPA. This can only be a good thing for the industry, as these are vital for allowing families to be able to deal with the affairs of people who can no longer do it for themselves. It also allows opportunities to improve safeguards against fraud, abuse and undue pressure on the most vulnerable of individuals.

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There is still a need to register existing and new trusts through the online Trust Registration Service. This article will provide a general overview of the types of trust that require registration.

Since 2017, HMRC have required any tax-paying trusts to be registered with them through the online Trust Registration Service (TRS). The latest UK Money Laundering Regulations extended this requirement to include most non-tax-paying trusts.

All UK express trusts and some non-UK express trusts are required to register on the Trust Registration Service, unless explicitly excluded from registration (‘excluded express trust’).

An express trust is a trust created deliberately by a settlor, usually in the form of a document such as a written deed or declaration of trust. This ‘declaration’ can be written or oral. Express trusts can be created to take effect during the settlor’s lifetime or on death (by will).

UK and non-UK trusts with a liability to UK taxation are required to register, even if not required to register as registrable express trusts.

If a trust falls within one or both of these categories, the trustees must register the trust with the TRS and provide certain information on the trust.

Below is a table of common types of trusts and their likely registration requirements. This is not a comprehensive list of trusts and a general overview only. Please refer to the HMRC Trust Registration Service Manual here for full guidance on specific conditions whereby a trust may be required to register:

*Any trust with a liability to UK taxation is required to register unless stated otherwise.

Trusts where registration is not required:

• Charitable trust
• Child Trust Funds and Junior ISAs
• Disabled person or persons trust (unless for taxable purposes)
• Unit trusts (authorised and unauthorised)

There is still a need to register any outstanding and newly created trusts. If you require further guidance on this, there are the following resources available:

On Techlink, we have created a series of documents and videos to help you guide your clients through the registration service.

In addition to the online guides, we provide a comprehensive TRS Mezzanine service which can you book here.

This is an opportunity for either you or one of your support team to receive step by step guidance on how to create a Government Gateway Organisation ID and step by step guidance on how to complete HMRC’s Trust Registration Form. Through screen sharing over Zoom one of our consultants will talk you through the completion process.

Additionally, you can choose to have the Mezzanine with one of your lead trustee clients attending.  You should include their name and email address on the booking form. This Mezzanine incurs a fee of £60 (£50 plus VAT).

Book your appointment here 

To request further information or any queries please contact:

ben.ward@technicalconnection.co.uk or web.enquiries@technicalconnection.co.uk

In Hopes v Burton [2022] EWHC 2770 (Ch) the Court agreed to set aside two deeds of appointment thus saving the trustees a potential tax liability of over £400,000.

Court cases involving life policy trusts are not that common, and since the best learning method is to learn from (preferably someone else’s) mistakes, this recent decision is most welcome.

The case concerned two deeds of appointment made in 2013 and in 2014 by the trustees of a trust (“the trust”) made by Hilary Marsden (formerly known as Hilary Burton – “the settlor”) in 1992 in respect of a policy held by her with Skandia Life.

The trust in question was a “typical” trust offered by life offices until 2006: a flexible power of appointment interest in possession trust, with Box A “Possible Beneficiaries” and Box B “Immediate Beneficiaries”. Four Immediate Beneficiaries were named. The settlor appointed her then accountant and solicitor as additional trustees. The settlor died in 2004, but it was only in 2012 that the Skandia policy came to light. The value of the policy was then £2.15 million. The original trustees agreed to step down and new ones were appointed.

In 2013, the new trustees met with a solicitor to discuss the trust and a deed of appointment was drafted in favour of several beneficiaries. The intention was to keep some of the beneficiaries’ interests intact, remove one of the immediate beneficiaries and create a discretionary trust in respect of another part of the trust fund. It was apparently understood that the appointment of one share would create a discretionary trust and would have inheritance tax (IHT) consequences, the tax to be paid from that share. In 2014, another deed of appointment was executed to appoint one part of the trust fund also on discretionary trust.

In 2017, the trustees took advice from specialist tax counsel, Emma Chamberlain. Her advice in summary was that:

(1) the 2013 appointment did not leave the interests of the three existing beneficiaries as they were (as had been intended), but instead revoked the previously qualifying interests in possession for all four funds, and, HMRC were likely to argue, created new non-qualifying interests in possession; and

(2) because both the appointments were revocable, the Immediate Beneficiaries retained the possibility of benefitting from the trust fund in the future, and the appointments were likely to be treated as gifts with reservation of benefit.

As to the amount of tax payable in consequence of the appointments, the trustees were advised that there was an immediate charge of £365,000, plus interest of over £68,000. In addition, ten-yearly IHT charges would apply and appointments out of the trust fund would be subject to exit charges.

The application (claim) to set aside the two “offending” deeds was made by the trustees in 2021. The main ground was that the trustees made an operative mistake as to the substance or effect of the deeds. In particular, the 2013 appointment was said to have mistakenly (and unnecessarily) included provisions which terminated existing interests in possession and appointed new ones in their place, when there was no intention to do so.

After considering the evidence, in particular the subsequent actions of the trustees (who made capital distributions which they could make under the original trust but not under the deed of appointment) and the relevant case law, the judge decided that the 2013 appointment indeed created radically different interests held by the immediate beneficiaries, and that the trustees were mistaken in doing so.

This mistaken belief was in his judgment “sufficiently serious as to make it unconscionable not to set aside both appointments”.

Comment

This case perfectly illustrates the dangers of making changes to beneficiaries under pre-22 March 2006 flexible interest in possession trusts (*). And as can be seen from the above, even the involvement of solicitors does not necessarily save you from getting it wrong (compounded in this case by different members of the firm dealing with different aspects of the case and clearly not communicating sufficiently well). Thankfully, the trustees in this case managed to avoid the eye watering tax bill, but bringing such an application to Court must have cost a substantial sum as well.

Remember that in the case of a mistake, there are two possibilities of a remedy – either to rectify the deed or to rescind (set aside) the transaction. In both cases, a Court application will be needed. Obviously, the Court will examine any evidence and decide on the facts of the case. But nothing is ever guaranteed, so it’s best not to get it wrong in the first place.

(*) those who need a refresher of the rules on this can find these here.

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The audio-visual tax reliefs are intended to support and incentivise the production of culturally British film, animation, high-end TV, children’s TV and video games.

Film tax relief has been around longer than any other creative relief in the UK. The original film tax relief was introduced in 1992 (Section 42 of the Finance (No. 2) Act 1992). And much has changed, even since the introduction of the current iteration of film tax relief, introduced in 2007. The Government is now seeking to support the growth of the audio-visual sectors. 

There are eight creative industry tax reliefs covering film, animation, high-end TV, children’s TV, video games, theatre, orchestra and museums and galleries. Within these eight reliefs, there are five audio-visual reliefs: film tax relief (FTR), animation tax relief (ATR), high-end TV tax relief (HETV tax relief), children’s TV tax relief (CTR) and video games tax relief (VGTR). This consultation focusses on the five audio-visual tax reliefs. The package of reforms proposed in this consultation aims to simplify and modernise the reliefs and ensure they boost growth in the audio-visual sectors whilst remaining fiscally sustainable.

The objectives of the review are to ensure that:

• The UK has modern audio-visual tax reliefs that enhance the UK’s audio-visual industries;
• The reliefs maximise the contribution of the audio-visual industries to the growth of the UK economy;
• The reliefs remain affordable, with additional costs of the reforms are consistent with the Government’s fiscal rules and commitment to sustainability in the public finances;
• The reliefs are straightforward to administer and that the reformed audio-visual tax reliefs should not significantly increase administrative burdens for businesses or HMRC;
• Current and future commercial needs are anticipated without significant future changes being required;
• The reforms do not create additional avoidance opportunities.

Reforms proposed in the consultation include simplifying the film and TV reliefs (FTR, ATR, HETV tax relief and CTR) by merging them into one tax credit scheme, modernising the criteria for HETV tax relief and defining a documentary in legislation. It covers the EU legacy requirements currently embedded in VGTR and the reform of all of the audio-visual reliefs to above the line, refundable expenditure credits.

The Government is interested in feedback from a wide range of sources, including individuals, companies, representative and professional bodies. This consultation closes at 11:30am on 9 February 2023. It expects reforms to the audio-visual reliefs to be implemented in Spring 2024, but will confirm the timing of implementation after the consultation has ended.

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Even though HMRC have not actioned penalties for not registering existing trusts by 1 September 2022, there is still a need to register existing and new trusts. In this bulletin we remind you of the current need to register outstanding trusts.

Since 2017, HMRC have required any tax-paying trusts to be registered with them through the online Trust Registration Service (TRS). The latest UK Money Laundering Regulations extended this requirement to include most non-tax-paying trusts. It is the responsibility of the trustees to register the trust on the TRS.

The requirement to register the trust was initially given a deadline of 1 September 2022. Although this deadline has passed, HMRC has stated they will currently not fine those who have not registered by the 1 September 2022 deadline. However, there is still a need to register your trusts and the following information will remind you of the requirements.

Any existing non-taxable trusts must be registered as soon as possible. Any new trust created from 4 June 2022 must be registered within 90 days of being created. HMRC can issues fines of up to £5000 where the trustees fail to register the trust. However, HMRC have confirmed that, in recognition of the fact that the registration requirements are new and an unfamiliar obligation for trustees, there will be no penalty for a first offence, either for failure to register or late registration, unless this is due to deliberate action by the trustees.

What this means for the trustees is that, should HMRC become aware of a trust which has not been registered by the relevant deadline, a warning letter can be issued. If issued, trustees must register the trust within the deadline stipulated in the letter, otherwise a fine may be issued to the trustees. Trustees need to be made aware that if they receive such a penalty, this will be their personal liability.

Where deliberate non-compliance takes place, each case will be looked at individually by HMRC.

Another point to remember, for those trustees who may think that they don’t need to register their trust until they receive a letter from HMRC, is that, without a proof of registration, trustees of registrable trusts will not be able to deal with financial institutions or professional advisers.

There is still a need to register any outstanding trusts. If you require further guidance on this, there are the following resources available: 

On Techlink, we have created a series of documents and videos to help you guide your clients through the registration service.

In addition to the online guides, we provide a comprehensive TRS Mezzanine service which can you book here.

This is an opportunity for either you or one of your support team to receive step by step guidance on how to create a Government Gateway Organisation ID and step by step guidance on how to complete HMRC’s Trust Registration form. Through screen sharing over Zoom one of our consultants will talk you through the completion process.

Additionally, you can choose to have the Mezzanine with one of your lead trustee clients attending. You should include their name and email address on the booking form. Having the lead trustee attend will incur a fee of £60 (£50 plus VAT), which will be automatically charged to your Partner account.

Book your appointment here. 

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HMRC has updated its guidance on working through an umbrella company. Recent changes to the off-payroll working rules (IR35) will have resulted in many former contractors becoming employed by umbrella companies.

An umbrella company is, normally, a company that employs a temporary worker (an agency worker or contractor) on behalf of an employment agency. The agency will then provide the services of the worker to their clients.

Most umbrella companies employ workers using an employment contract which will set out their terms and conditions. This means the company must comply with employment law.

If a worker is employed by an umbrella company, the tax rules on agency workers and off-payroll working (IR35) will not apply to that worker.

The umbrella company will pay the worker for the work they do for the employment agency’s clients and deduct any income tax and employee National Insurance contributions due under PAYE from their pay.

The end client pays the agency for the worker’s services. The agency deducts a fee for placing the worker with the end client and pays the rest of the money (sometimes known as the assignment rate or the limited company rate) to the umbrella company.

HMRC’s guidance has been updated to show how umbrella company workers are engaged. It has new sections to help workers understand their pay and employment rights and check that their tax and National Insurance is correct. Please also see our earlier Bulletin Working through an umbrella company for more information.

Currently, there is no means by which umbrella companies themselves are regulated, as employment agencies and employment businesses are. Although as employers they are still required to comply with wider employment and tax law.

If a non-compliant umbrella company causes detriment to a worker, the Employment Agency Standards (EAS) cannot take enforcement action on behalf of the worker. It would be up to the worker to enforce their rights via an employment tribunal.

The Government therefore published a consultation last November, the intention being to bring umbrella companies into scope of the framework that regulates employment agencies and employment businesses which is currently enforced by the EAS. This will require primary legislation. Please see our earlier Bulletin. The evidence gathered through this consultation will inform the ongoing policy development of potential options aimed at better protecting workers. It is intended to ensure that the Government is developing regulations based on the most up to date market practices. Future regulations will aim to protect workers’ rights and continue to allow businesses to operate flexibly. We await the outcome.

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HMRC have confirmed they have updated the TRS to include the question: ‘Does the trust have a Schedule 3A data sharing exemption?’ HMRC have placed an update on the Agent Forum and asked trustees to return to the TRS as soon as possible to complete this additional question and keep their record up to date.

What is Schedule 3A?

This is a list of excluded trusts contained in legislation detailed in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. You can find the full list here.

Background to question

Certain express trusts are excluded from registration on the Trust Registration Service (TRS). However, even though a Schedule 3A exclusion may apply, if the trust subsequently acquires a liability to pay income tax or capital gains tax (CGT) and needs a Unique Taxpayer Reference (UTR), the trust will need to register on the TRS. In addition, if the trust incurs any of the other three taxes, i.e. inheritance tax (IHT), Stamp Duty Land Tax (SDLT), Land and Buildings Transaction Tax (LBTT), Land Transaction Tax (LTT) or Stamp Duty Reserve Tax (SDRT) which would bring it within the definition of a relevant taxable trust, the trust will need to register on the TRS.

The data sharing provisions that came into force on 1 September 2022, which allow third parties to request details of information held on the register in certain instances, do not apply to express trusts which fall within the list of trusts under Schedule 3A. This question has been added so that HMRC can identify such trusts to ensure that they are not subject to data sharing.

The additional question is to the benefit of affected trustees and their beneficiaries as it will maintain their confidentiality.

Other TRS updates

The TRS manual now states that because a premium bond purchased by an adult in the name of a minor does not create an express trust it is not registerable on the register.

National Savings Certificates purchased similarly are also outside of TRS registration, unless they have been specifically purchased by trustees of an express trust for a minor child.

Comment

It’s good to see more clarity added to the TRS and that HMRC are putting controls in place to maintain confidentiality where necessary.

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An initial look at the factors in the dividend/salary decision in 2023/24, in the possibly vain hope that the dust has settled on U-turns to September’s ‘fiscal event’, shows dividends losing their attraction.

On 14 October, Liz Truss gave up on her goal of reversing Rishi Sunak’s 2023 increases to corporation tax rates. Although Truss told the Conservative Party Conference that “We are keeping corporation tax at 19%, the lowest in the G20”, this was somewhat disingenuous as the Finance Act 2021 had already provided for the increases. That meant she would have needed to overturn existing legislation, which would not have been easy. On 17 October, the dividend tax rate reductions proposed by Kwasi Kwarteng went the same way.

All of which means the calculations of bonus or dividend require recalculation once more. These latest examples take account of:

• The increase for companies with over £250,000 of profits in the rate of corporation tax to 25% from 1 April 2023.
• The ‘marginal relief provisions’ which will apply for companies with profits between £50,000 and £250,000. The effect of these is that 19% will apply to the first £50,000 of profits and 26.5% to the excess up to £250,000.
• The abolition of the 1.25% Health and Social Security Levy.
• The reduced national insurance (NIC) rates from 6 November 2022.
• The annual basis of calculation for the Class 1 NICs for directors, which means the cut in NICs seven months into 2022/23 results in averaged rates of 14.53% for a director’s employer and 12.73% and 2.73% for the director.

1. Director with sufficient earnings to be a basic rate taxpayer, no available dividend allowance and bonus kept within basic rate band

The higher corporation tax rates are not enough to counter the savings in NICs, so the dividend continues to be the better option.

2. Director with sufficient earnings to be a higher rate taxpayer (40%), no available dividend allowance and bonus kept within higher rate band

 At the higher rate tax level, the dividend appears to be only the better option if marginal corporation tax is at 19%. However, this may not always be the case where the £100,000 threshold for personal allowance taper comes into play, because for each £1 of gross profit, the bonus will increase the director’s marginal income by between 8.5% and 19.6% more than the dividend will, implying a greater loss of allowance.

For example, consider a director with £100,000 of earnings in 2023/24 who loses £1 of allowance for each additional £2 of income up to £125,140 of total income. The director pays an effective marginal rate of 60% (40% + 40% x .5) on bonus or 53.75% (33.75% + 40% x .5) on dividend until the taper band ends:

3. Director with sufficient earnings to be an additional rate taxpayer (45%), no available dividend allowance

At the additional rate tax level, the dividend is again only the better option if marginal corporation tax is at 19%.

Comment

The new/retained corporation tax rates will make dividends less attractive in many instances, as does the retention of 1.25 percentage points higher dividend tax rates at all levels (not just basic rate).

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In response to a question from Ian Blackford during Prime Minister’s question time on Wednesday 18 October, Liz Truss confirmed that she was “completely committed to the Triple Lock” applying to the State Pension from next April. The statement came after many ministers, including the Chancellor, Jeremy Hunt, had avoided any promise on the level of increases, with much speculation that the rise would be limited to the growth in earnings (5.5% to July).

Triple Lock and State Pensions

The “Triple Lock” for increases to the basic and new state pension is the greater of:

• Consumer Price Index (CPI) inflation;
• Earnings growth; and
• 2.5%.

It won’t come as any surprise that the winner this year is the CPI and the fact that the Government has pledged to honour the promise to stick with the Triple Lock for at least this parliament should be welcomed.

Cynics may note that it is long time until next April 2023 and the Prime Minister has a track record of changing her policies. However, assuming that there is no U-turn on this occasion the new rates will be based on 10.1% CPI inflation to September 2022. The new State Pension will increase from April 2023 from £185.15 by 10.1% to £203.85. The basic State Pension, which came into payment for those reaching State Pension Age before 6 April 2016, will increase from £141.85 to £156.20:

This will be a significant increase for those who are relying on the State Pension as their main source of income. Last year’s increase was only 3.1%, because the Triple Lock was rolled back to only a Double Lock discounting earnings growth.

One of the significant issues with the increase is that it only comes into payment in April 2023, over five months after the calculation dates. This can work either in the individual’s favour or against them depending on what happens in the next few months. In any case, pensioners have been dealing with increasing costs for many months now and so, even if inflation drops dramatically, it isn’t likely to mean that those impacted are any better off in the long run. The only solace is that, because of the Triple Lock, over recent years we have seen at or above inflation increases meaning that the starting point for this year’s rise could have been significantly lower.

Note that the statement only related to the Triple Lock, which applies to the new and old State Pensions. In theory other State Pension benefits will also rise in line with the CPI. In practice we may have to wait until 31 October for confirmation.

Other State Benefits

Other benefits would usually be increased by CPI. This includes working-age benefits, benefits to help with additional needs arising from disability, carers’ benefits, pensioner premiums in income-related benefits, Statutory Payments, and Additional State Pension. This hasn’t yet been confirmed and as with the Triple Lock, these increases are not written into legislation so we will have to await any announcements.

Those on benefits are likely to be the greatest hit by inflation and many are already struggling, so full inflation increases will be key to keep people afloat in these hard times. We again have the discrepancy in the timing with inflation hitting now, but the implementation not coming until April when many might find themselves in greater debt just to keep up with the basics.

Other pensions

Many defined benefit pension schemes, including those in the public sector, use the September CPI to uprate benefits. Again, this will not come into payment until April for those in receipt of benefits.

However, there are bigger issues for those who are still accruing benefits in defined benefit schemes. These are often again increased in April, but using the preceding September’s inflation figures to determine the amount. However, legislation uses the previous September’s figure when calculating the annual allowance used. So, we will see a mismatch of 7% (the difference between 3.1% in September 2021 and 10.1% in September 2022). Although a rather technical point, this means that the amount of annual allowance used is exaggerated compared to schemes that use the same CPI figures as the legislation does. So, we are likely to see very large annual allowances and therefore an increased number of people suffering an annual allowance charge this year. There are things that can be used to mitigate these charges, such as carry forward and getting good quality financial advice in this area is key to ensuring that only the actual tax due is paid.

There have been promises to review some of these issues for public sector schemes, specifically the NHS Pension Scheme but we still await confirmation of any changes and timing of these changes.

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