Welcome to the August 2019 edition of the HM Revenue and Customs (HMRC) Trusts and Estates Newsletter.
Please note we do not have a mailing list for the newsletter.
Tax agents and advisers play an important role in helping their clients to make sure their tax returns are correct, but many agents do not complete a large number of trust and estate returns, as it is a specialised area.
HMRC have 19 agent toolkits for you to download and use. They are a free online resource aimed at helping you avoid the most common errors we see in returns filed by agents.
The toolkits are updated yearly to reflect changes in the relevant Finance Act.
Refreshed versions of both the main Trusts and Estates and supplementary Capital Gains Tax for Trusts and Estates toolkits were published in April 2019.
The Trusts and Estates toolkit helps and supports tax agents and advisers for whom trusts and estates is not a significant element of their practice’s work. Other agents may still find the toolkit helpful in validating their approach to this work and anyone, including businesses, trustees, and personal representatives, may find the toolkit useful if they are completing a Trust and Estate Tax Return.
The Capital Gains Tax for Trusts and Estates toolkit helps and supports tax agents and advisers by providing guidance on the errors we find commonly occur in relation to (CGT) for trusts and estates and supplements the main toolkit for trusts and estates. Use this toolkit if you need to complete form SA905 Trust and Estate Capital Gains supplementary pages. If there has been a chargeable gain in the period the return covers, or you are not sure whether CGT applies, use both toolkits.
In June, we also refreshed the Inheritance Tax (IHT) toolkit to assist you with completing IHT Account form IHT 400. The toolkit may be helpful when completing the excepted estate forms IHT205 or C5 (for Scotland) as many of the considerations, such as valuation, also apply to these.
Trust Registration Service
Micro Service Development
We have recently deployed the first feature for the Trust Registration Service (TRS) that allows users to register a Will Trust that contains:
- A lead trustee (can include multiple UK-based trustees).
- Multiple named individual beneficiaries (will only require Name, Date of Birth, National Insurance Number or Address).
- Classes of beneficiary.
- Assets (money, property and land).
Further features will be delivered between now and the end of the year.
We will continue to test the service with users as we release each feature. If you are interested in taking part in User Research or if you have any questions, please contact: email@example.com.
Protecting your data – authorising an agency to act on behalf of a trust for the Register
Later this year HMRC will be releasing more functionality to the TRS to allow amendments to be made and we need to ensure that data is held securely.
Agents and their clients will need to complete a few additional steps to ensure only those with a legitimate reason can access and update details on TRS – usually the agent or nominated trustee. Information on these changes will be available on GOV.UK, but this is to let you know now what the process will be. Please note that this will not replace the existing 64-8 process for Self-Assessment, so agents must ensure the appropriate authorisation is in place where needed.
The process flow below sets out the steps required for authorisation:
- wants to act on behalf of a trust or update the register
- logs in to Agent Services account
- enters trust Unique Taxpayer Reference (UTR)
2. HMRC Agent Services
- checks agent’s relationship to trust
- if no relationship exists, a link is created for the agent to email to their client
- emails client with link (the link is to the invitation which the client needs to accept)
4. Lead Trustee
- lead Trustee clicks on link from agent
- logs in to Government Gateway account (may have to set up Organisation Credentials first)
- completes random known fact check about the trust
- invite accepted
- agent:Trust relationship created for Trust Register
- agent can now access trust data and update register as necessary
Fifth Anti-Money Laundering Directive (5AMLD) Update
The government is developing its approach to the implementation of 5AMLD and held a consultation, setting out the requirements and key issues. This closed on 10 June 2019 and HM Treasury and HMRC are now reviewing the responses.
Trusts and Estates Allowance
Making tax easier for trusts and estates with small amounts of savings income
In 2016 the requirement to deduct tax at source on bank, building societies and National Savings and Investments (NS&I) income was removed and income from these sources is now paid gross. As a result, trustees and personal representatives had increased reporting requirements. We introduced an interim arrangement so trustees or personal representatives do not have to submit returns, or make payments under informal arrangements, where the only source of income is savings interest and the tax liability is below £100. These arrangements have been extended to include the 2019/20 to 2020/21 tax years, and we will continue to review the situation longer term.
Publication of Lifetime Gifting Research
In May 2019, HMRC published a research report entitled ‘Lifetime Gifting: Reliefs, Exemptions, and Behaviours’. This research was externally commissioned to the National Centre for Social Research (NatCen) in association with the Institute for Fiscal Studies (IFS). The research explored the incidence of gifting in the general population and how it varied between different groups. A quantitative survey was conducted with a representative sample of adults in Great Britain. It also explored the nature of gifting – including the number and value of gifts given, whom they were given to, and the motivations for doing so – as well as awareness of Inheritance Tax rules and exemptions.
Office of Tax Simplification Review into Inheritance Tax – Part 2
In 2018, the Chancellor commissioned the Office of Tax Simplification (OTS) to conduct a review into Inheritance Tax. Due to an unprecedented amount of engagement from members of the public, the OTS decided to produce two reports. The first was published in November 2018 and focuses on administrative issues. The second published in July 2019 focuses on broader policy and technical issues. Now that both reports have been published, the Government will consider the recommendations carefully.
Inheritance Tax – IHT421 Agent Update
HMRC has recently updated the Inheritance Tax (IHT) process surrounding the Probate Summary form IHT421.
Agents who are using the statement of truth process to submit their probate applications, via Probate Online or by using forms PA1A or PA1P, can now ask HMRC to send the IHT421 directly to the Probate Registry or Courts and Tribunal Service Centre (CTSC). This will allow agents to submit probate applications at the same time as their IHT accounts, shortening the time it takes to complete the process.
The IHT421 has been updated to include the option to make the request. On accounts where this is requested, HMRC will only send the IHT421 to the registry or CTSC once the IHT400 account has been processed and any IHT liability has been paid. HMRC will email the authorised form IHT421 directly to the Probate Registry or CTSC on the day they authorise it.
This updated process aligns with the process already in place for personal representatives not using agents to administer their estate.
Agents who do not use the statement of truth process and instead submit an oath are unable to use this service and the IHT421 will be posted back to them in the normal way.
Changes to agent letters issued when the IHT400 is processed
It is now over 12 months since we introduced improvements to our timelines in relation to the IHT400 process. These changes were outlined in our special edition of the Trusts and Estates Newsletter of April 2018. We recognise some of the information provided in the letters issued to agents about “what happens next” needs updating and that it is reasonable to expect that agents will be aware of when to advise us of changes, what form to use and when interest becomes chargeable.
We are in the process of updating the letters to ensure they are brief, clear and concise when telling agents what they need to know, whilst recognising the knowledge and expertise agents have in this area. As a result, we have temporarily stopped issuing these letters to agents. The letters are continuing to be issued to personal applicants.
This does not alter the process, timelines, or expectations that we have previously committed to. We will continue to give you a specific date when you can expect to hear from us if we have any further questions and we will continue to provide this date on the calculation. It will remain the case that after that time has expired you can assume we have no further questions to ask about the IHT400.
We will seek opportunities to involve you in the updated process to make sure the content of the revised letter is appropriate for your needs.
Administration Period of Deceased’s estate: Income Tax and Capital Gains Tax
Informal Payment Arrangements
Trusts & Estates newsletter of August 2018 provided guidance for using informal arrangements for non-complex estates.
The Trust & Estates newsletter confirms what action HMRC takes on receipt of a calculation of the tax due from the Personal Representatives. This included a payment slip being issued with a unique payment reference to enable the Personal Representative to pay HMRC the tax due for the Deceased’s estate administration period only. HMRC are currently receiving payments which include the lifetime reference or which have no reference.
Any payment made using the informal arrangements for the Income Tax and/or Capital Gains Tax due for the Administration Period should only be made using the unique payment reference provided. This is to prevent delays in the payment being matched against the tax due for the Administration Period and to prevent the payment being allocated against any other tax liability due.
Any cheque payments should be made using the payment slip provided. The due date for the payment will normally be 30 days from the date HMRC agreed the Personal Representative’s tax calculation and provided the payment slip and unique payment reference number. Any late payment of the tax due may result in the informal arrangement facility for the estate being withdrawn.
Complex Estates: Online registration
An estate is considered complex if one or more of the following conditions are met:
- the probate or confirmation value of the estate is more than £2.5 million
- Income Tax and/or Capital Gains Tax due for the whole of the administration period exceeds £10,000
- the proceeds of assets sold by the Personal Representative in any one tax year for date of deaths up to 5 April 2016 exceeds £250,000, or £500,000 for deaths after 6 April 2016.
Where the estate is considered complex, Personal Representatives must report their income and gains to HMRC using the self- assessment process and complete Trust and Estates tax returns for each year of the administration period.
In order to submit a self-assessment tax return the Personal Representative needs a Unique Taxpayer Reference (UTR). This is obtained by registering the estate online through the Trust Registration Service.
A few issues have arisen on estates being registered due to the online completion fields being over populated or incorrectly completed. This has resulted in notifications of UTR or self-assessment returns for the estate being addressed to the Deceased or posted to a building of an agent rather than direct to the Personal Representative.
The following should assist to rectify the problems and ensure all correspondence is issued correctly from HMRC systems after online registration.
- The registration service will limit the number of characters that can be used but please ensure the words ‘Estate of’ is included to prevent items being posted using the deceased’s name and causing distress. e.g. ‘Estate of Mr A N Other (Deceased)’.
- The estate correspondence address should always be the Executor’s/Personal Representative’s address. This will ensure the tax return, Notice to File and all self- assessment statements are correctly sent to the Personal Representative(s), who is legally responsible for reporting and paying the tax due for the estate. Many recent estate registrations have the agents address even when they are not named as Executor in the Deceased’s will.
- If the agent is a named Executor, then the company name and business address should be included in the estate address field. Omitting the company name at the address field when registering may result in items of post being returned to HMRC undelivered.
An agent registering online for a UTR for the estate on behalf of the Personal Representatives, does not provide the required authority for HMRC to discuss or communicate the estate tax affairs with the agent.
HMRC require the Personal Representative to provide authority to communicate with an accountant, tax agent or adviser acting on the personal representative’s behalf using form 64-8 Appoint-tax-agent – ‘Authorising your Agent’.
Draft Legislation Released On L-Day
Legislation published at L-Day included the following measures:
The IHT treatment of trusts and settlements depends on the domicile of the settlor and the situs of the assets. If the settlor is UK-domiciled, IHT is chargeable wherever the assets are sited. When assets were added to a settlement after a settlor becomes UK-domiciled, there was some doubt about the treatment of those additions and transfers between trusts. A measure was announced to clarify the position.
The second measure relates to payments received by, or due to, the original survivors from the Kindertransport Fund. The legislation will relieve these payments from Inheritance Tax.
The third measure introduces an Income Tax, Inheritance Tax and Capital Gains Tax exemption for payments made under the Windrush Compensation Scheme.
The legislation will also include a provision for a new power to exempt payments from Income Tax, Inheritance Tax and Capital Gains Tax where appropriate for any future compensation schemes.
HMRC welcomes any comments on the draft legislation.