TRUSTEE FORMS AND REPORTING REQUIREMENTS
Trustees have a number of duties to fulfil which include the need to satisfy certain compliance and reporting requirements during the duration of the trust. This article looks at trustee reporting requirements in light of what documentation needs to be completed and submitted to HMRC or given to a beneficiary.
Register a trust – Form 41G
Trustees will need to register a trust with HMRC to pay income tax and capital gains tax which can be done by completing a form 41G. This should be done by 5 October in the tax year following that in which the trust is set up. On receipt of this form HMRC will issue a unique taxpayer reference which will be needed when sending in a tax return.
Form 41G requires information such as the trust name, trustee details, details of the assets settled, details of the settlor or, if the trust is created by a will or the laws of intestacy, details of the deceased and the administration period.
This form will normally only be required for trusts which are taxable under the relevant property regime so would not include, for example, a bare trust. In addition, this form will not be required if the trust asset is non-income producing, for example where the sole trust assets comprise investment bonds or where there is no likelihood of income and gains arising. This is because there is no requirement to register when annual trustee returns would not be required.
Trustees must report trust income and capital gains in a trust and estate self-assessment tax return after the end of each tax year and pay any tax due by the deadline, broadly 31 January following the end of the tax year.
The trustee tax return must be completed and submitted either electronically by 31 January following the end of the tax year, or a paper return (SA900) must be filed by 31 October after the end of the tax year.
In order to complete the tax return, trustees must keep relevant records, for example:
- bank statements for current and deposit accounts
- confirmation of interest paid into bank or building society accounts
- chargeable event certificates issued by life assurance companies
- dividend vouchers from companies and unit trusts
- details of any rental income and expenses
- details of all taxes and expenses paid by the trustees
- details of income payments to beneficiaries under a discretionary trust
- if assets have been sold, details of completion statements, contract notes, price received etc…
Notify beneficiaries about income and tax – Form R185
Trustees must provide a beneficiary with a statement of income by completing Form R185 (Trust income). This will include details of the amount of income and tax paid by the trustees. The beneficiary can then use the information provided to complete their own tax return.
If the settlor has retained an interest in the trust the settlor will be taxable on the income. In this case the trustees must provide the settlor with Form R185 (Settlor) which will include details of the income and tax paid by the trustees.
Inheritance tax account – Form IHT100
The settlor will be required to complete and deliver an IHT100 account in respect of a chargeable transfer made to a trust (i.e a trust taxable under the relevant property regime) where:
• the value transferred is attributable to cash or quoted shares or securities and is above the settlor’s available nil rate band; or
- the value transferred is attributable to other assets, is above 80% of the nil rate band and the loss to the donor’s estate by virtue of the transfer is more than the settlor’s available nil rate band.
The settlor’s available nil rate band is effectively the nil rate band at the time the trust is executed reduced by any chargeable transfers made by the same settlor in the seven years immediately preceding the creation of the trust.
Periodic and exit charges – Form IHT100
The position is more complicated under a relevant property trust where a ten-year anniversary charge arises or where capital is appointed out of the trust as it is necessary to look at the position in each case to determine whether or not a chargeable event occurs and a number of other factors need to be borne in mind, for example whether the settlor has created any other trusts on the same day, whether property has been added to the trust, whether any capital appointments had been made etc…
Broadly, in these cases an IHT charge would arise and in turn a form IHT100 would be required where the notional aggregate chargeable transfer exceeds 80% of the nil rate band (£260,000 for 2015/16). So, for example, on a ten-year anniversary charge, if the current value of the trust fund (assuming no capital appointments had been made and the settlor had not made any other chargeable transfers in the seven years before creating the trust) is in excess of £260,000 an IHT100 form would be required.
The responsibility for filing the form once the trust has been set up rests with the trustees as part of their ongoing administrative duties.
Trustees will also be required to notify HMRC of any other changes to the trust and will have other duties to fulfil dependent on the type of trust.
AUTUMN STATEMENT DATE ANNOUNCED
The Chancellor of the Exchequer has announced that a joint Autumn Statement and Spending Review will be published on Wednesday 25 November 2015.
DC OPS: GOVERNANCE STANDARDS AND CHARGE CONTROLS
Governance standards and charge controls in respect of Defined Contribution Occupational Pension Schemes.
Changes to from 6 April 2015 mean that many occupational defined contribution pension schemes offering money purchase benefits will have to meet new these requirements.
The key points to the changes are to:
- Ensure the scheme meets new governance standards and explains how it has done so in an annual chair’s statement.
- Ensure the scheme has an appointed chair who signs the annual statement.
- Ensure the scheme is compliant with the new charge controls where it is being used by employers to comply with their new duties under the automatic enrolment legislation.
The Pensions Regulator (TPR) has developed a number of products to help with the changes, including an essential guide to governance standards and charge controls, a list of frequently asked questions, and a checklist to help complete the new questions that have been added to the DC scheme return as a result of the changes.
ENHANCED INVESTMENT DIVERSIFICATION FOR NEST
NEST is seeking an enhanced investment diversification through emerging market bond fund mandate.
NEST (National Employment Savings Trust) is planning to enhance its ability to diversify members’ portfolios by procuring an emerging market bond fund mandate. This will be added to the existing ‘building block’ funds that underpin the scheme’s default NEST Retirement Date Funds and some of its alternative fund choices.
The scheme is searching for an actively managed pooled emerging market debt fund that blends bonds denominated in both local and hard currencies (predominantly US$).
Mark Fawcett, NEST chief investment officer, said:
“Emerging market debt is becoming a strategic holding for a growing number of pension schemes. This is in part because emerging market bonds can offer attractive yields in an otherwise low yielding fixed income environment. We think it’s appropriate to have emerging market debt among the growing number of asset classes NEST can call on to deliver better retirement outcomes for our members.
NEST is committed to searching out new opportunities for diversification where we see potential benefits for our members. Emerging market debt has evolved over the past two decades. What was once a small market of US Dollar-denominated sovereign debt is now a diverse mix of local and hard currency sovereign and corporate debt totalling more than USD 2 trillion. We want members to be able to reap the benefits of exposure to this market.
We believe an active management approach can take advantage of opportunities while managing the portfolio risk by avoiding unattractive or risky borrowers. By having an investment universe of both hard and local currency debt, the manager will have the ability to invest in the most attractive areas of the market.”
The deadline for receiving tenders will be in October 2015 with a view to awarding the contract in early 2016.
Summary of NEST’s investment approach
- Unique default option comprising of 47 single-year target date funds, risk managed for each year of retirement,
- Focused fund range including Ethical, Sharia, Lower Growth and Higher Risk options with the same low charge as the default,
- Sophisticated risk management driven by best practice investment techniques, high quality analysis and transparent governance,
- Cost-efficient delivery of innovative solutions powered by leading global fund managers,
- Clear investment communications designed with and for members, employers and their advisers.
NEST in Numbers
As at 23 August 2015:
- NEST has over 2.3 million members.
- Our opt-out rate is 8 per cent on average and lower for younger members.
- There are over 25,500 employers using NEST, plus over 1,000 self-employed members.
- There are over 3,000 NEST connectors helping employers use NEST.
- NEST has approximately £535 million invested on behalf of our members.
POLICE OFFICERS RETIREMENT; INDIRECT AGE DISCRIMINATION
Is it indirectly discriminatory on the grounds of age to retire police officers entitled to receive a pension, in order to cut costs?
Following the Government’s Comprehensive Spending Review in 2010, police forces were required to make 20% cuts in their budgets over four years. Since 80% of their costs related to staffing Forces across the country looked to reduce staff numbers. Police Forces tended to use Regulation A19 forcing Police officers that had completed 30 or more years’ service to retire on full pension.
Using Regulation A19, clearly disadvantaged officers over the age of 48 and those affected argued indirect age discrimination. Indirect age discrimination is not unlawful if justified as being a proportionate way of achieving a legitimate aim. An earlier Employment Tribunal decision ruled that the use Regulation A19 had been discriminated against on the grounds of age.
Leave to appeal was allowed. That appeal has now been held, in the Employment Appeal Tribunal, West Midlands Police v Harrod & Ors, UKEAT/0189/14/DA.
Regulation A19 allows a Police Officer to be forced to retire where their retirement would be in the general interest of the efficiency of the force. However it could only be applied to those officers who had served long enough (i.e. 30 years) to be in receipt of 2/3 Annual Pensionable Pay. Thus, the restriction ensured that only those best able to suffer the financial consequences of enforced retirement are subject to it.
This also meant of course that only those officers over the age of 48 could be forced to retire and this is exactly what happened when five police forces had to make manpower savings.
The claimants won their claims of age discrimination at the Employment Tribunal, the Employment Tribunal rejecting the defence of justification, saying that there were a number of alternatives that meant that enforced reliance on regulation A19 was not a proportionate means of achieving a legitimate aim. The respondents appealed.
The Employment Appeal Tribunal
Though the Tribunal was right to conclude that discrimination potentially occurred when the Forces chose to use A19, it did not focus upon the fact that what was discriminatory was inherent in A19 itself, and that there was nothing inherently age discriminatory in the practice of the Forces independently of that within the terms of A19 itself.
The evidence before it required the Tribunal to hold that certainty of achieving the necessary efficiencies was an essential part of the aim or means, and that there was no other way in which the aim could be achieved. It fell into error by failing to apply the principles in Benson and Blackburn, and to enquire whether the adoption of A19 was a reasonably necessary means of achieving the aim of the Force’s scheme: it was not for it to manufacture a different scheme.
It wrongly concentrated on the process, and reasoning, adopted by the Forces when deciding to utilise A19, rather than enquiring whether at the date of the hearing before the Tribunal the use of A19 was proportionate (and hence justified, objectively). It applied too stringent a standard of scrutiny, and did so in part because it failed to engage with the fact that Parliament had chosen to make A19 in the terms it did, wrongly thought A19 was a provision intended to provide security of tenure (which it demonstrably did not, since it allowed for the opposite), and failed to analyse the reasons of social policy which underpinned the restriction of the use of A19 to those who had an immediate pension entitlement. It wrongly put forward as alternative but less discriminatory means of achieving the same object three matters two of which were entirely speculative, and none of which offered the necessary certainty.
The Employment Appeal Tribunal upheld the appeal.
Police officers are not employees, and their office will only terminate (unless found guilty of misconduct or capability) upon retirement.
Regulation A19 of the Police Pensions Regulations 1987 allows for retirement of officers who meet certain criteria, if doing so is in the general interest of efficiency.
Overturning the employment tribunal’s judgment, the Employment Appeal Tribunal found the only way the forces could be certain of a reduction in officer numbers was by use of A19, since there was no power to make a police officer redundant, and their actions were therefore justified.
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