Simplification on the horizon for inheritance tax and trusts
The Treasury has proposed new inheritance tax (IHT) rules for trusts
Trusts are regularly used for estate planning for two main reasons:
- They can be used to retain an element of control over gifted capital. Some parents are wary of their children’s ability to handle money properly, even when those ‘children’ are well beyond adolescence and have their own offspring.
- There can be tax advantages from the use of trusts, although over the years these have been whittled down by successive Chancellors.
The IHT treatment of trusts is arcane, to put it mildly. It is one of those areas of taxation where at times the professional fees needed to calculate the tax due can match or exceed what ends up with the Treasury. The 2012 Budget proposed that there should be consultation on simplifying the rules, which mostly dated back to the era of Capital Transfer Tax.
As often happens when the words ‘simplification’ and ‘tax’ appear in the same sentence, HMRC’s ideas for making things simple looked to those on the other side of the fence as a mechanism for increasing revenue. In this instance, the difference of opinion resulted in a trio of consultation documents, the last of which arrived in June. This largely marks the end of the consultation process: the latest paper makes it clear that while new legislation will not begin to operate until 6 April 2015, it will then apply to any trust established or added to from 7 June 2014.
The good news is that it appears trusts created before that date will benefit from some genuine simplification without suffering from the less welcome revisions that apply to new trusts. But be warned, once the legislation eventually emerges, you may well need to review your estate planning. If you think you may be affected, let us know.
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The taxman’s revenge continues on avoidance schemes
HMRC are expected to start a new crusade in their battle against tax avoidance very soon.
The Finance Bill 2014 should become the Finance Act 2014 later this month, bringing into law about six hundred more pages of tax provisions. Among the new legislation will be a potent weapon for HMRC in its battle with users of artificial tax avoidance schemes.
Finance Act 2014 law will allow HMRC to seek “accelerated payments of tax” from users of tax avoidance schemes which are either subject to the Disclosure of Tax Avoidance Schemes (DOTAS) requirements or are counteracted by the General Anti-Abuse Rules (GAAR). If the scheme is subsequently judged to be effective by the courts, then HMRC will refund the tax paid. In an approach which has been described as retrospective, HMRC will be able to demand payment for schemes set up years ago which have yet to go through the courts. This is no small beer: HMRC is said to be looking at cases involving £5.1bn of tax and 33,000 taxpayers. The first tax demands are expected to be issued by HMRC as soon as the Act comes into force.
The result is likely to be a flood of litigation, as the users of the schemes caught in HMRC’s net try to delay payment to HMRC by proving that their schemes are valid. It has already been reported in the press that in response, the Ministry of Justice is busy recruiting more solicitors and barristers to sit as judges at Tax Tribunals.
This latest twist in the HMRC fight against tax avoidance is another reminder that one of the few areas where the Treasury is happy to increase spending is in countering lost revenue. Perhaps that is why the numbers of new tax avoidance schemes reported under DOTAS is continuing to fall.
As with any potential tax saving scheme, take accredited professional advice before you get involved.
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‘Phishing’ emails – HMRc urges caution
HMRC warns tax credits claimants over scam emails
Most users of email are familiar with dubious messages purporting to be from their bank requesting account details. However, tax credits claimants are being warned about scams or ‘phishing’ emails that are being sent out by fraudsters in the run-up to the 31 July renewal deadline. On 16 June 2014, HMRC stated that nearly 24,839 phishing emails were reported during last year’s tax credits renewal period, which runs from April to July, and HMRC have warned of a recent surge in their use.
HMRC took action to close down 1,740 illegal sites in 2013, most originating in Turkey, Spain and Bulgaria. Phishing emails also came from the UK and the US, often promising money back and including a link to a fake replica of the HMRC website. One such scam is contained in an email circulated from taxreturn@hmrc.gov.uk telling recipients about a 2013 tax refund report
These scams can easily catch people out, especially if they are actually expecting a refund. The aim of such emails is to obtain bank account or credit card information. They often ask for the recipient’s name, address, date of birth, bank account number sort code, credit card details, national insurance number, passwords and mother’s maiden name. Nick Lodge, Director General of Benefits and Credits, HMRC, said that they will never ask people to disclose personal or payment information by email and that people need to be wary of emails with attachments which might contain viruses.
If you have uncovered such an email then let us know and we can notify HMRC.
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Self-assessment payment deadline looms
The self-employed have been warned by the Association of Chartered Accountants (ACCA) not to forget about the forthcoming tax payment deadline.
ACCA has warned the self-employed not to overlook the 31 July self-assessment tax payment deadline which falls in the middle of summer – a time when many people will be preoccupied with their summer break. Failure to make payment on time risks hefty fines which would be an unwelcome surprise waiting for them upon return.
The accountancy body announced that those classed as self-employed, which currently stands at 4.54 million people in the UK, are required to make payment on accounts by the end of July. This deadline also applies to higher rate taxpayers, company directors and anyone who has more than one income as well as, potentially, child benefit claimants.
The head of taxation at ACCA, Chas Roy-Chowdhury, warned that the current fine for failing the deadline is 5% of tax owed and that the amount can escalate. He recommended that anyone struggling with self-assessment calls the HMRC helpline, but also said that should a taxpayer need advice, they should always check the credentials of the adviser.
If you need help with your self-assessment return, please get in touch.
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New online service for tax credits renewal
With the tax credits renewal deadline of 31 July less than one month away, HM Revenue & Customs (HMRC) have launched a new online service for the vast majority of claimants to use.
On 2 June, HMRC announced that all claimants can now use a new online service to renew their tax credits, as the July deadline approaches. Just over 1.5 million claimants still need to renew their claims with HMRC by the end of month, or their payments might end. Last year, more than 650,000 failed to renew on time.
The service is available at www.gov.co.uk or via the HMRC App. So far, 135,000 people have submitted their tax credits renewal online, with a consistent 96% satisfaction rate.
HMRC is asking all claimants to check the accuracy of the information in their renewals pack, and to inform the department about any changes to their circumstances that they haven’t already reported, such as changes to their working hours, childcare costs or pay.
Nick Lodge, Director General of Benefits and Credits, HMRC, said, ‘loads of people have already renewed their tax credits claim online, and have found it quick and easy to do. We’ve now made it even better and are encouraging everyone to renew online if they can, at a time that suits them’.
Renewing before the 31 July is the most important thing if you want to keep your credits, and we are here to advise you.
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