Thursday, 15 December 2016

UK residential property in offshore structures: more surprises from the Government

The Government has confirmed its intention to make UK residential property held indirectly by non-doms through an offshore structure chargeable to UK Inheritance Tax (IHT).  As planned, this will begin on 6 April 2017.

Although the proposal was first announced as far back as July 2015, draft legislation effecting this change was only published on 5 December 2016 – and it contains some surprises.

Thursday, 1 December 2016

Get ready for another ATED valuation date

The Autumn Statement on 23 November contained no further detail about how the Government’s proposals for achieving Inheritance Tax transparency for offshore structures from 6 April 2017 is going to work in practice.  However, in rather ominous fashion, the Government did use the occasion to confirm that the changes are going ahead as planned from 6 April 2017. 

Non-doms owning UK residential property through offshore trusts, companies or other vehicles need to get their skates on if they are to get any reorganisations finished by 6 April 2017 (see my blog of 3 November 2016 for one reason why doing so may be desirable).  However, there may be another good reason – some may find their company’s Annual Tax on Enveloped Dwellings (ATED) bill goes up substantially too.  Here’s why.

Thursday, 17 November 2016

Appointing joint attorneys? Here’s a welcome clarification of the law

Lasting Powers of Attorney are an essential wealth management tool for anyone who directly holds UK assets and can name at least someone whom they trust to take decisions on their behalf.  They are often made by individuals concerned about who would continue to make decisions about their finances or their health and welfare if they ever lost capacity to do so themselves.  They are increasingly popular – registrations of Lasting Powers topped 533,000 in the year to end March 2016; a 35% increase from the previous year.  The increasing number of registrations indicates that there are more Lasting Powers in circulation. 

Many clients want to appoint more than one attorney.  The Lasting Power of Attorney legislation permits the appointment of both attorneys and replacement attorneys, the latter acting as substitutes.  Joint attorneyships are not uncommon.  Take the situation of an individual – James – who wants to appoint his wife Amy and his brother Bill as his attorneys, to act jointly in relation to his finances.  His lawyer tells him that it would be prudent to name a replacement attorney too and he chooses his son Christopher.  But his son is still in his twenties and, if either Amy or Bill or both were able to act, he would like them to do so in preference to Christopher.  This simple sounding request has had English law in knots for a while. 

Thursday, 3 November 2016

Non-dom tax changes – IHT periodic charges and offshore trusts

Well advised non-doms know that UK situated assets should never be directly held by their offshore discretionary trusts.  To do so would subject the offshore trust to periodic charges to UK Inheritance Tax (IHT).  These charges comprise the entry charge, the ten year anniversary charge, and exit charges, where value leaves the trust after creation.

To avoid these charges arising, it has been commonplace for UK situs assets, such as UK real estate, to be owned by an offshore company, which in turn is wholly owned by an offshore trust.  The trust’s asset is the shares in the offshore company – non-UK situs, so the trust is not subject to periodic IHT charges as it does not directly own UK situated assets.  As a result, many non-doms have no understanding of what periodic charges are and when they apply.  However, if the Government’s proposals in their August Further Consultation come to pass, ignorance of IHT periodic charges could cost non-doms and their offshore trusts.

Thursday, 20 October 2016

Charitable giving in Wills: charity must be governed by UK law to secure IHT exemption

The UK Inheritance Tax (IHT) saving is probably the last reason why anyone would deliberately choose to leave assets to charity in their Will.  However, it is the case that leaving assets to charity is very IHT efficient, for two key reasons.  Qualifying gifts are 100% IHT exempt – the charity will not have any IHT deducted from what is left to them.  In addition, from April 2012, the estate of anyone leaving at least 10% of their net estate to charity benefits from a reduced IHT rate of 36%.  The recent Court of Appeal case of Routier & Anor v HMRC ([2016] EWCA Civ 938) is a reminder, though, that, where the Will contains a foreign element, it is dangerous to assume that the IHT charity exemption will be automatic.

Thursday, 6 October 2016

Long term UK resident non-doms set to lose remittance basis of taxation

Anyone who does not regard England as their permanent home (non-dom) but who has been resident in the UK for at least 15 out of the past 20 income tax years will wake up to a very different UK tax regime on 6 April 2017, according to a further consultation issued by the Government on 19 August. 

Thursday, 22 September 2016

Contributed to a property purchase? Here’s how to protect your investment

Buying a property is often the biggest investment a person will make in their lifetime.  It therefore stands to reason that people want to ensure that their investment is protected.  The recent case of Haque v Raja[1] provides a reminder that, if you don’t appear on the title of a registered property that you’ve contributed to and you don’t live in it as well, you must protect your interest.

Thursday, 8 September 2016

UK residential properties held through offshore structures: a call to action

Owners of UK residential property held through offshore structures, including non-UK companies and partnerships, should urgently review their structures following the publication of a further consultation by the UK Government on 19 August 2016.  The consultation confirms that residential properties in these structures will be exposed to UK Inheritance Tax (IHT) from 6 April 2017.  The aim of the changes is to bring all UK residential properties within the charge to IHT.

For more detail on the proposal, read my briefing note available on Fladgate's website via this link:

Thursday, 28 July 2016

Trusts and the revised 4AMLD

In my 26 November 2015 blog, I wrote about the impact on trusts of the EU’s first draft of the Fourth Anti-Money Laundering Directive (4AMLD).  It seemed that only if the trust generated ‘tax consequences’ would the trustees have to provide details about the trust to a central register, which would not be publicly available.  However, a revised version of the draft 4AMLD was published by the European Commission on 5 July and it envisages public access to trust beneficial ownership information for certain trusts only.  The coming into force of the 4AMLD is brought forward to 1 January 2017, from 26 June 2017.

Thursday, 14 July 2016

Brits abroad! Will planning for Brits with foreign assets

With the summer holiday season upon us, it’s time to dust down those dreams of owning a bolthole in your favourite part of the world, where summer means summer and the sky is always blue.  It’s not uncommon for Brits to own assets outside the UK these days and not just the infamous holiday home in the sun.  In acquiring assets abroad, though, the last thing usually considered is what happens to those assets on death and is an English Will any use in getting them sorted out?

Thursday, 30 June 2016

Brexit exits – don’t get caught out by the IHT deemed domiciled rules

Brexit uncertainties may be giving fresh impetus to many UK resident non-UK domiciliaries who are thinking about their residency plans.  However, for res non-doms, it’s important not to lose sight of another key tax change now on the horizon – the change in the Inheritance Tax (IHT) deemed domiciled rules.

Thursday, 16 June 2016

Second marriage spouses and Wills: three key bear traps to avoid

Second marriage spouses sometimes have Wills that do not leave their assets to their second spouse outright.  This is particularly the case when there are children from the first marriage and the intention is to ensure that everyone – the second wife and the children from the first marriage – receive something.  For some clients, this can be a hard balancing trick to get right but careless will drafting can make the situation a lot worse.

Thursday, 2 June 2016

Corporate beneficial ownership registers – where are we now?

In my last blog, I looked at automatic exchange of information regimes and this blog carries on the transparency theme but in the sphere of corporate transparency.

Britain is ‘having a transparency moment’, as some might say.  Regular readers of this blog will know that Britain has already introduced a public register of beneficial ownership and control of UK companies and Limited Liability Partnerships (see my blog of 24 March 2016), being the first of the G20 countries to do so.  However, it appears that matters will not stop there.

Thursday, 19 May 2016

Trustees and the Common Reporting Standard (CRS)

As if FATCA wasn’t enough, UK trustees will have to get to grips with two new reporting regimes next year – the CRS and the European Directive on Administrative Cooperation, or DAC.  The DAC is how the OECD’s Common Reporting Standard (CRS) will be implemented by the EU. 

Thursday, 5 May 2016

Pension death benefits and spousal bypass trusts: time to review

April 2015 saw another radical overhaul of the taxation of UK pensions on death.  Gone is the 55% tax charge on payment of a lump sum death benefit after death, if the pension member either died after their 75th birthday or died pre-75 having already entered into drawdown.  Instead, pension payments from a money purchase pension can now be paid to the member’s nominated beneficiary in the form of either a lump sum, annuity or flexi-access drawdown and no 55% charge is payable at that time.  The nominated beneficiary is taxed at their highest marginal rate of Income Tax in respect of any benefits received.  In addition, the nominated beneficiary can pass on any remaining funds tax free on their death. 

Many defined contribution private pension schemes are set up as trusts so that, on a pension member’s death, the pension trustees decide whom to pay any lump sum death benefit to.  Members are encouraged to sign a letter of nomination – slightly misnamed as the letter is not binding on the pension trustees in any sense.  The rules of certain pension schemes permit the lump sum benefit to be paid to a trust set up by a member in lifetime, often referred to as a spousal bypass trust.  This is also, on its face, a misnomer because it is commonplace for the spouse to be a potential beneficiary of the trust, along with the children, and usually the intention was that the spouse would benefit from it during their lifetime. 

Thursday, 21 April 2016

To keep or not to keep Wills with Nil Rate Band trusts?

Chances are, if you’re British, married and have a professionally drawn Will which predates 2008, you may have a discretionary trust of the Inheritance Tax Nil Rate Band (NRB) in it.  It is often called something like the ‘Legacy Fund’ and, while the exact words may differ, the Will usually provides for a gift of the NRB (currently £325,000 if fully available) to trustees to hold on discretionary trusts for the benefit of the surviving spouse and children.

Having any trust in a Will needs careful thought.  Will trusts add complexity and usually cost something to run after a death occurs.  It is always much simpler for married couples to leave everything to the surviving spouse outright in their Wills, if that is what is desired.  So it’s important to be clear, if you have a NRB trust in your Will, what benefit it may bring your heirs.

Thursday, 7 April 2016

Higher SDLT rates for additional residential purchases: planning points

Here we are in the brave new world of higher Stamp Duty Land Tax (SDLT) rates for certain residential property purchases.  As from 1 April 2016, anyone buying an additional UK residential property, such as a second home or buy-to-let, faces paying a surcharge of 3% above the standard SDLT rates (see my blog of 14 January 2016 for further details of the changes as they were announced in the Autumn Statement 2015).

UK residential property remains a popular investment class for many people who already own their own homes, so are there any planning opportunities?

Thursday, 24 March 2016

Trustees and the PSC Register

From 6 April 2016, virtually all UK incorporated companies (and LLPs, but in this blog I’ll refer to companies only) will have to maintain a register of individuals or entities who control them.  As a result, individuals who either own, directly or indirectly, more than 25% of the shares or voting rights of such companies, or who hold the right to appoint or remove a majority of directors or have the right to exercise, or actually exercise, significant influence or control over the company may receive a notice from the company requiring them to provide information for inclusion on the People with Significant Control (PSC) Register. 

Trusts (UK or offshore) are caught by these new provisions too because the law provides that, if the trust were to be regarded as an individual and, as such, would satisfy any of the above conditions, then those persons who exercise, or have the right to exercise, significant influence or control over the trust are PSCs that need to appear on the company’s PSC Register.

Thursday, 10 March 2016

New dividend taxation rules: what trustees should be doing

The taxation of dividends is set to change in the new UK tax year beginning 6 April 2016.  The 10% dividend tax credit will go, replaced by a new £5,000 dividend allowance that permits the first £5,000 of an individual’s dividend income to be taxed at 0%. Dividends will still sit as the top slice of the individual’s income, so if the dividend would otherwise be taxed at the higher or additional rate of Income Tax (IT) but for the dividend allowance, the allowance gives the individual 32.5% or 38.1% tax relief.  Individuals with significant dividend income have little to cheer about, though, as the allowance is paltry.  Much less has been written about the effect that all this has on trustees, who are not taxed as individuals for IT purposes.  How are trustees going to fare and what planning steps should they be considering?

Thursday, 25 February 2016

Probate fee increases: a death tax by any other name?

Probate fees do not, on the whole, cause much consternation.   After someone dies, an application to the Probate Registry is often needed to obtain a grant – proof acceptable to English financial institutions that they can safely pay over the deceased’s assets to the personal representatives (PRs) named on the grant.  This exercise, one of the few occasions when PRs can swear at a lawyer without anyone getting upset (swearing the oath), is usually fairly straightforward and the application to the Probate Registry for the grant currently costs £155 if done through a solicitor.  However, in its recently published consultation, the Government states that it would like to raise probate fees to £20,000 for some estates.  Yes, £20,000 just to get the grant!  No wonder some quarters of the press have dubbed this another death tax. 

Thursday, 11 February 2016

Best Will for…..providing for minor children

Parents, in particular, face a bewildering choice of structure options when it comes to making provision for their children in their Wills.  Often the prospect of their child inheriting a large sum of money at age 18 does not appeal.  Instead, being able to delay a child taking control of their inheritance until age 21 or 25, or later, or arranging for a series of staggered payments over the years is preferred.  However, the tax consequences of the various options are not always explained and parents can end up making inappropriate choices. 

Thursday, 28 January 2016

Executors: it’s time to turn detective or risk a penalty

An essential part of any executor’s job is to work out the assets and liabilities of the estate that they are administering.  An executor also owes a statutory duty to HMRC to correctly report the value of the estate to it so that, if any Inheritance Tax is due on the estate, the right amount is paid. 

The job of the executor is made more difficult because the Inheritance Tax rules require gifts made in the seven years prior to death to be brought back into account.  However it’s not uncommon for an executor to know next to nothing about the deceased’s personal finances, let alone what gifts the deceased has been making and to whom.  This can be a real problem for executors because if the executor reports to HMRC that there have been no gifts but HMRC is able to produce evidence of gifts having been made, the executor may receive a tax geared penalty, calculated with reference to the potential tax forgone if the gift had remained undiscovered, which the executor is personally liable for.  So how much detective work does an executor have to do to avoid any risk of getting a penalty for undeclared gifts?

Thursday, 14 January 2016

New Stamp Duty Land Tax proposals – a market changer?

In the Autumn Statement last month, the Government proposed that purchases of additional residential properties in England, Wales and Northern Ireland should be subject to an extra 3% Stamp Duty Land Tax (SDLT) on top of the standard SDLT rates.  All types of residential property will be caught – second residences, buy-to-lets or furnished holiday lets – unless worth under £40,000. 


The key test of whether the new rules will apply is this.  If, at the end of a day in which an individual purchases a residential property, that individual owns two or more residential properties and the purchase was not replacing their main residence, the additional 3% SDLT will be due.  The main exception to this (for home-owners) is if the individual was purchasing a main residence and can demonstrate that a previous main residence was sold within 18 months of the purchase.


How might the proposed changes affect individuals?