TREASURY TO EASE ON NON DOM CRACKDOWN
According to the Financial Times, the Treasury is considering altering the way it taxes offshore trusts on fears its proposals could force out wealthy foreigners.
Despite a number of changes being announced in the Budget last year involving reforms to the tax treatment of non-domiciled individuals, non-domiciled trusts initially escaped the crackdown after the Treasury said it wanted to spare wealthy families who had set up an offshore trust before the new rules were introduced.
‘[They] would find it very punitive and administratively burdensome to have to recreate sufficient history of the transactions that may have taken place in the trust,’ the Treasury said at the time.
However, in August the government toughened its stance, unveiling proposals to remove the tax-exempt status of offshore trusts if any benefits are paid out.
Criticising George Osborne’s planned crackdown on “fundamental unfairness” in the tax regime for residents whose permanent home is outside Britain, the Institute of Chartered Accountants in England and Wales warned that “the potential damage to the UK economy could outweigh any anticipated exchequer gain”.
In addition, a group of professional bodies — including the Institute of Chartered Accountants, Chartered Institute of Taxation, Law Society and Society of Trust and Estate Practitioners — said it would be better to reform and simplify the existing system of taxation of offshore structures. They said the Treasury’s plans would create particular difficulties when it came to taxing “dry” structures (those that did not create income or gains) such as those holding residential property and art.
Following such criticism, the Treasury is now looking at a different approach – we could see the removal of taxation on all future payout gains, with those gains only subject to capital gains tax when the payment is made to a UK resident – only time will tell.
COURT OF APPEAL VICTORY FOR CIVIL PARTNER AFTER PARTNER WAS DISHONEST ABOUT HER WEALTH
A woman who discovered that her civil partner, who died intestate in 2013, had hidden business assets worth millions of pounds during the dissolution of their relationship has succeeded in the Court of Appeal as she seeks to set aside the original settlement.
In the case in question (Roocroft V Ball  EWCA Civ 1009), the couple dissolved their civil partnership in 2009 having been together for 18 years. One of the partners (A) was a successful property developer and provided by far the largest part of the couple’s income during their partnership. A consent order was made giving the other partner (B) £162,000, by way of instalments and periodical payments of £18,000 per year for two years, based on the court’s assessment of the matrimonial assets as disclosed at the time. The order was to include provision that, upon termination of the periodical payments order, the appellant agreed not to make any claims against the deceased’s estate upon her death.
Three years later A died. It then emerged that she had misled the family court about the extent of her assets by claiming she had lost large sums in the 2008 property crash. B accordingly sought to overturn the original consent order so that a more generous order could be negotiated with A’s estate.
A had died without leaving a will, so her estate was defended by her personal representative who had obtained letters of administration. The lower courts refused to vary the consent order, citing administrative issues. However, B instructed her solicitors, to prepare an appeal anyway.
The appeal was heard in July this year and judgment has been given in her favour.
The case is the first to consider the discovery of non-disclosure of assets after the death of one of the parties, says Irwin Mitchell.
Last year there were two cases (Gohil v Gohil  EWCA Civ 274 and Sharland v Sharland  UKSC 60) raising similar issues of non-disclosure, both of which were decided in favour of the deceived spouses.
This judgment however, confirms that same-sex couples can also have the same rights as heterosexual partners under family law and reiterates the message that dishonesty will not be tolerated by the courts.
TREASURY FACES £84bn SHORTFALL OVER NEXT FIVE YEARS
Chancellor faces a £84 billion drop in the public finances
Former chancellor George Osborne set himself the objective of reaching a surplus by 2019/20. However, soon after the 23 June Brexit vote Osborne abandoned that goal. He said in a speech that the government needed to be ‘realistic’ in the climate of uncertainty and volatility that voting to leave the EU had created.
According to analysis by think-tank Resolution Foundation ‘a significant expected deterioration’ in the forecast for public finances, which is ‘partly but not wholly related’ to the Brexit vote will leave the Treasury with an £84 billion black hole.
This would include:
• £23 billion additional borrowing in 2019/20, wiping out the £10 billion annual surplus anticipated by the OBR at the March Budget and meaning the mandate’s requirement for a surplus in that year would be breached by £13 billion; and
• Rising debt as a proportion of GDP in 2017/18, breaking the secondary rule by around £10 billion in that year.
Matthew Whittaker, author of the Resolution report said the new chancellor, Philip Hammond, had already indicated the need for a fiscal ‘reset’.
He said: ‘While this has been over-interpreted as a hint of a radical shift in macro-economic policy, it simply represents recognition of the need to drop his predecessor’s fiscal pledges if he is to avoid making significant additional tax rises or spending cuts at a time when the economy will already face increased headwinds.’
CAPITAL GAINS TAX NOW RAISING MORE REVENUE THAN IHT
Latest figures published by HMRC show that £6.9 billion of capital gains tax was paid by more than 220,000 individuals in 2014/15. Here we look at some simple planning strategies that might help to reduce the burden
While capital gains tax (CGT) has historically earned comparatively little for the exchequer, over the last few years CGT receipts have been increasing steadily, with recent figures from HMRC reporting a 22% increase to £6.9 billion in 2014/15. With inheritance tax producing a yield of just £3.8 billion in the same period, CGT is clearly no longer the poor relation and the haul for subsequent years is likely to be even greater as investors continue to take advantage of a buoyant stock market and landlords (who continue to pay CGT at the higher rates of 18/28% on residential property disposals) sell to cash in on rising house prices.
Fortunately, there are a number of simple things that taxpayers can do to reduce their chances of being one of the 220,000 or so individuals lining the government’s coffers. These include:
• Minimise tax on realised gains – there is an appreciable difference in the rate of CGT paid by basic and higher rate taxpayers. For married clients, it can therefore be beneficial to ensure that taxable gains are made by the lower-taxed spouse where this is possible (remember that transfers between spouses or civil partners living together are made on a ‘no gain/no loss’ basis). With an annual exemption of £11,100 in 2016/17, even if both spouses are taxed at the same rate, there may still be the opportunity to use two annual exemptions rather than one.
• Make additional pension contributions – as the rate of CGT paid is determined by the level of combined taxable income and capital gains, those who are not married or in a civil partnership can still reduce the rate at which they pay CGT on non-exempt gains by reducing their level of taxable income. One way that this can be achieved is by making additional pension contributions. As higher rate tax relief on a pension contribution continues to be given by the extension of the basic rate band payment of an allowable pension contribution could result in an equivalent amount of a capital gain that would otherwise be subject to CGT at the higher rate of 20% now being taxed at 10% – reducing the rate of CGT paid by up to 50%.
• Make full use of the annual exemption – the annual exemption is given on a ‘use it or lose it’ basis. So if individuals are relying on certain investments for additional income, re-balancing asset allocation within their investment portfolio could provide the opportunity to use their annual exemption. In some cases considering a phased sale of shares over two tax years can prove to be beneficial as it is possible to benefit from the use of two annual exemptions.
• Make the most of reliefs – entrepreneurs’ relief, for example, can be very valuable, potentially reducing the capital gains tax on the sale of a business from a rate of 20% to 10% for the first £10 million of cumulative lifetime gains. However, the relief is only available as long as the qualifying conditions are met. Timing and advice will both be essential in order to maximise the relief available.
• Retain investments showing substantial gains – selling or gifting assets during lifetime could result in a CGT liability that would otherwise be wiped out altogether if the investments had been held until death. Where the taxpayer is elderly or in ill-health, a lifetime gift of chargeable assets may be particularly detrimental given the enhanced possibility that the donor may fail to survive the seven year ‘PET’ period and so make no IHT saving either.
With the average CGT bill now at £28,500, and possible changes to existing reliefs being mooted as the Autumn Statement approaches, the importance of planning ahead with the benefit of informed advice should not be underestimated.
TPR CONTINUES TOUGHER APPROACH AND FINES MORE TRUSTEES
The Pensions Regulator (TPR) has recently issued a Regulatory Intervention Report issued under s89 of the Pensions Act 2004 setting out the action they have taken against the trustees of two pensions schemes:
New Station Bodyworks Ltd Retirement Benefit Scheme, and
M Holleran Ltd Pension Plan.
The trustees of the schemes were ordered to pay a fine for failing to provide a scheme return.
The trustees or managers of registrable schemes are required by law to provide TPR with a scheme return. The scheme return provides vital information to TPR and is a basic administrative requirement of any trustee. It also allows trustees to confirm that they are complying with new DC governance standards.
The current number of warning notices issued for the failure to submit a scheme return by the due date stands at 23.
Nicola Parish, Executive Director for Frontline Regulation at TPR, said: “Providing information to TPR is an essential part of a trustee’s role and they are required by law to submit a scheme return and update their registrable information.
We are supporting trustees in numerous ways, including new web guidance and news-by-email to help them understand how to complete the new scheme return in order to demonstrate they are meeting new governance standards.
However, schemes should be aware that this type of breach will result in a fine and we hope that our latest intervention report will act as a reminder to all trustees to ensure they complete a scheme return on time. We will act where trustees demonstrate that they are not complying even with the basic duties.”
STATE PENSION TOP UP – SIX MONTHS LEFT TO APPLY
The Department of Work and Pensions (DWP) has recently issued a reminder to all those who have expressed an interest in topping up their Additional State pension by up to £25 per week. The option to make Class 3A Voluntary Contributions applies to individuals who attained their SPA on or before 5 April 2016, i.e. individuals who receive, or will receive, their State Pension under the old rules.
Why It Might Be Worth Revisiting This with Clients?
It has been possible to make the Class 3A Voluntary NIC payment since October last year. When the Government announced the details of these earlier, they stated that the rate offered would be in line with the market. However, even when they became available it was not possible for a healthy individual to secure a pension annuity paying the same level of income as achieved from paying Class 3A NICs. However, since then, annuity rates have been falling and then, post BREXIT, nose-dived.
So, for an individual aged 66, to secure an income of £1,300 p.a. with a 50% spouse’s pension that is index-linked would cost over £46,900, according to the MAS site on 28 October.
To obtain the same level of income a Class 3 would cost £21,775 based upon the DWP calculator run on the same date.
In simple terms, the Government offer which was generous when it was launched has, due to the changes in the annuity market, become very attractive.
It may be worth advisers who have clients who attained their SPA on or before 5 April 2016, who have spare capital and are bemoaning the low level of cash deposit interest rates, making them aware of the options from paying Class 3A NICs which the offer is still on the table. It may well be, depending upon the terms of your engagement with your client, it may head-off a potential complaint in the future.
TPR ISSUES ITS COMPLIANCE AND ENFORCEMENT BULLETIN FOR THE QUARTER TO 30 SEPTEMBER 2016
The Pension Regulator (TPR) has recently issued it latest Compliance and Enforcement Bulletin for the quarter ending 30 September 2016. This once again highlights continuing rise in the number of penalties issued, including Escalating Penalty Notices, as the whole AE process spreads out to encompass more SMEs.
The rise is in line with the sharp increase in employers reaching their deadline to comply with AE duties. Although the vast majority of employers are successful in meeting their duties, the minority of employers who fail to listen to warnings from TPR are subject to fines.
The report also highlights that explanations given for non-compliance such as illness, being short staffed or confusion between employers and their advisers are not a ‘reasonable excuse’.
The bulletin includes three case studies (starting on page 4 of the PDF) where an employer appealed against a TPR fine for not completing their declaration in time and explains why the basis for the appeal was not upheld by the tribunal. They go on to give examples of when “is a reasonable excuse not a reasonable excuse?
In this quarter, TPR issued 3,728 Fixed Penalty Notices to employers for failing to meet their automatic enrolment duties. After asking TPR to review their decision, a number of them contested their fines at a tribunal, claiming that their non-compliance was unintentional and that they had a “reasonable excuse”.
The circumstances that employers are citing in their defence include confusion between the employer and the payroll administrator as to who is supposed to be doing what, illness, and being short-staffed. However, as the case studies illustrate, in the eyes of the law, these reasons are not sufficient to avoid a fine.
The idea of a reasonable excuse is also used by HMRC for appeals against tax penalties, but the tribunal has made it clear that the two regimes are separate. The same basic principle applies, in that a reasonable excuse is something unexpected or outside your control that stopped you meeting your statutory duties. But because the automatic enrolment and tax duties are different, something that amounts to a reasonable excuse for HMRC’s purposes may not be enough to avoid an automatic enrolment fine.
For example, HMRC guidance says that a problem with their online service is a reasonable excuse for failing to file a tax return on time. However, the tribunal has rejected it as an excuse for failing to complete a declaration of compliance, because we offer an alternative telephone service, and because of the number of reminders that we give employers to complete their declaration in good time.
The following do not amount to a reasonable excuse for a failure to complete the declaration of compliance:
• You relied on someone else and they let you down
• You found the online system too difficult to use
• You didn’t get a reminder
• You made a mistake
• You or a member of staff were ill.
If you would like to know more about further financial planning services we offer please e mail or call us to discuss.
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