Special offer: half price
The government has
Why it matters: From their 16thear of residence, all non-doms will be deemed
Trusts, set up by non-doms and holding foreign assets, will remain outside the scope of IHT even after the non-dom becomes deemed
The proposals do not just affect
Whether the changes lead to an exodus of non-doms or to an increase in tax take remains to be seen.
Changes to the proposed IHT residence nil rate band provisions have been announced. First, HMRC announced updates on 15 September 2015 to cl 9 of the Finance (No. 2) Bill 2015, which will bring in the new IHT residence nil rate band (RNRB) under new ss 8D–8M of IHTA 1984. The RNRB will be introduced for homes that pass on death on or after 6 April 2017 to direct descendants of the deceased in estates worth broadly under £2m. The recent updates broaden the definition of ‘closely inherited’ to include spouses and civil partners of direct descendants, as well as widows, widowers and surviving civil partners of direct descendants who predeceased and had not remarried at the time of the death. See www.bit.ly/1hskYnM.
Second, on 18 September 2015, HMRC published a consultation document with a short response deadline of 16 October 2015, covering how to make sure that those who wish to downsize, move into residential care or give away their own home are not discouraged from doing so. The consultation document provides further details on how the RNRB can be preserved in such circumstances and the conditions that need to be met. It also seeks views on the practical difficulties in implementing the proposals.
The detail of how the RNRB will operate is covered at www.bit.ly/1MX9BOW.
Why it matters: There is still no clarification about whether it will be possible to use IHTA 1984 s 144 to qualify for the RNRB. Gifts of the home into a discretionary will trust, even where all the beneficiaries qualify as direct descendants, do not currently fall within the ‘closely inherited’ rules; and there is no comfort from HMRC that s 144
Practitioners may be surprised at the generous circumstances in which somebody who has downsized will still be eligible for the RNRB on their death, including where the property has been given away during the deceased’s lifetime, rather than sold.
Also, even if the RNRB operates to reduce or remove the IHT liability on the family home, it will probably still need to be sold to share out the estate between the deceased’s children. With the addition of the generous downsizing rules and the widening of the ‘closely inherited’ definition, surely the simplest solution would have been to increase the normal IHT nil rate band (perhaps limited to estates worth up to £2m) rather than introduce such complexity? The difference in tax take would be negligible.
HMRC has issued three useful pieces of IHT clarification in its latest Trusts and Estates Newsletter (see www.bit.ly/1KiDmtr):
Why it matters: There had been commentary that HMRC might have changed its approach to usufructs. However, HMRC has explained that this perception has arisen from cases settled because HMRC applied its approach to the facts of each case as it understood them to be. In each case, the difference between the value reported by the taxpayer and the value emerging following HMRC’s approach was not sufficient to warrant pursuit. It is helpful to have this clarification.
Normal expenditure out of income is a generous IHT exemption for HNWIs, and it helps to have clear guidance of what HMRC expects in the way of reporting requirements. In particular, HMRC reminds practitioners to pay careful attention to
HMRC has enhanced form 41G(Trust) to include a reminder to complete authorisation form 64-8 if a professional agent is acting, with links to this form and guidance, as well as guidance on trusts for vulnerable people. All of this is useful for practitioners.
In early October, HMRC updated the detailed guidance and Memorandum of Understanding for each offshore disclosure facility for the Isle of Man, Guernsey and Jersey. It confirmed that these will now close on 31 December 2015, in the same way as the Liechtenstein disclosure facility (LDF), instead of 30 September 2016 as originally scheduled.
Why it matters: Individuals with historic UK tax irregularities who are considering using these disclosure facilities to place their tax affairs on the right footing should know that there is now a very short window in which to do so. HMRC has made it clear that tax evaders have nowhere to hide.
Following the introduction of the annual tax on enveloped dwellings (ATED) in April 2013, HMRC commissioned research to understand the impact on enveloping and de-enveloping behaviour. The research involved 40 interviews with individuals who own enveloped properties, representatives of companies that own or manage property envelopes, and their agents. The research suggests that ATED (and 15% SDLT) has discouraged the initial enveloping of properties. However, it seems that where an envelope already exists, very few are de-enveloping their property. See www.bit.ly/1OnNvI1.
Why it matters: The most common reasons cited for enveloping properties were IHT planning and privacy. Avoidance of SDLT by transferring company shares was not mentioned as
Special offer: half price
The government has
Why it matters: From their 16thear of residence, all non-doms will be deemed
Trusts, set up by non-doms and holding foreign assets, will remain outside the scope of IHT even after the non-dom becomes deemed
The proposals do not just affect
Whether the changes lead to an exodus of non-doms or to an increase in tax take remains to be seen.
Changes to the proposed IHT residence nil rate band provisions have been announced. First, HMRC announced updates on 15 September 2015 to cl 9 of the Finance (No. 2) Bill 2015, which will bring in the new IHT residence nil rate band (RNRB) under new ss 8D–8M of IHTA 1984. The RNRB will be introduced for homes that pass on death on or after 6 April 2017 to direct descendants of the deceased in estates worth broadly under £2m. The recent updates broaden the definition of ‘closely inherited’ to include spouses and civil partners of direct descendants, as well as widows, widowers and surviving civil partners of direct descendants who predeceased and had not remarried at the time of the death. See www.bit.ly/1hskYnM.
Second, on 18 September 2015, HMRC published a consultation document with a short response deadline of 16 October 2015, covering how to make sure that those who wish to downsize, move into residential care or give away their own home are not discouraged from doing so. The consultation document provides further details on how the RNRB can be preserved in such circumstances and the conditions that need to be met. It also seeks views on the practical difficulties in implementing the proposals.
The detail of how the RNRB will operate is covered at www.bit.ly/1MX9BOW.
Why it matters: There is still no clarification about whether it will be possible to use IHTA 1984 s 144 to qualify for the RNRB. Gifts of the home into a discretionary will trust, even where all the beneficiaries qualify as direct descendants, do not currently fall within the ‘closely inherited’ rules; and there is no comfort from HMRC that s 144
Practitioners may be surprised at the generous circumstances in which somebody who has downsized will still be eligible for the RNRB on their death, including where the property has been given away during the deceased’s lifetime, rather than sold.
Also, even if the RNRB operates to reduce or remove the IHT liability on the family home, it will probably still need to be sold to share out the estate between the deceased’s children. With the addition of the generous downsizing rules and the widening of the ‘closely inherited’ definition, surely the simplest solution would have been to increase the normal IHT nil rate band (perhaps limited to estates worth up to £2m) rather than introduce such complexity? The difference in tax take would be negligible.
HMRC has issued three useful pieces of IHT clarification in its latest Trusts and Estates Newsletter (see www.bit.ly/1KiDmtr):
Why it matters: There had been commentary that HMRC might have changed its approach to usufructs. However, HMRC has explained that this perception has arisen from cases settled because HMRC applied its approach to the facts of each case as it understood them to be. In each case, the difference between the value reported by the taxpayer and the value emerging following HMRC’s approach was not sufficient to warrant pursuit. It is helpful to have this clarification.
Normal expenditure out of income is a generous IHT exemption for HNWIs, and it helps to have clear guidance of what HMRC expects in the way of reporting requirements. In particular, HMRC reminds practitioners to pay careful attention to
HMRC has enhanced form 41G(Trust) to include a reminder to complete authorisation form 64-8 if a professional agent is acting, with links to this form and guidance, as well as guidance on trusts for vulnerable people. All of this is useful for practitioners.
In early October, HMRC updated the detailed guidance and Memorandum of Understanding for each offshore disclosure facility for the Isle of Man, Guernsey and Jersey. It confirmed that these will now close on 31 December 2015, in the same way as the Liechtenstein disclosure facility (LDF), instead of 30 September 2016 as originally scheduled.
Why it matters: Individuals with historic UK tax irregularities who are considering using these disclosure facilities to place their tax affairs on the right footing should know that there is now a very short window in which to do so. HMRC has made it clear that tax evaders have nowhere to hide.
Following the introduction of the annual tax on enveloped dwellings (ATED) in April 2013, HMRC commissioned research to understand the impact on enveloping and de-enveloping behaviour. The research involved 40 interviews with individuals who own enveloped properties, representatives of companies that own or manage property envelopes, and their agents. The research suggests that ATED (and 15% SDLT) has discouraged the initial enveloping of properties. However, it seems that where an envelope already exists, very few are de-enveloping their property. See www.bit.ly/1OnNvI1.
Why it matters: The most common reasons cited for enveloping properties were IHT planning and privacy. Avoidance of SDLT by transferring company shares was not mentioned as
