A summary of key legal updates for the Private Client sector over the past two weeks is as follows.
The Autumn Budget 2021 on 27 October did not produce the major reforms to CGT, IHT, trusts and/ or non-dom taxation that we had been expecting. In respect of headline tax announcements, the Chancellor opted to go no further than the 1.25% increase to NICs and dividend tax rates announced in September and the increase in the corporation tax rate announced in March. Our comments on the Budget have been published by IFA Magazine and can be read here. The main announcements affecting Private Client practitioners are as follows.
- CGT reporting - an increase to the deadline to report and pay CGT after selling UK residential property from 30 days to 60 days.
- Income tax - the main rates, savings rates and default rates will remain unchanged from 2021/22 and are summarised here.
- IHT and CGT - rates and allowances will remain unchanged from 2021/22 and are summarised here.
- ATED – the annual chargeable amounts will rise by 3.1% from 1 April 2022 in line with the September 2021 CPI. The charge will range from £3,800 to £244,750.
- Tax avoidance – various new powers have been announced to counter tax avoidance scheme promoters. Extra funding of £292 million across three years is being allocated to HMRC to combat tax avoidance and evasion.
- Charities – changes have been announced to the corporation tax "cultural reliefs". In respect of business rates, HM Treasury have confirmed there is currently no intention of removing the mandatory and discretionary charity reliefs.
- Dormant assets - Finance Bill 2022 will amend tax legislation to assist with the expansion of the Dormant Assets Scheme so that a CGT charge does not immediately arise when dormant assets are liquidated and their monetary value transferred into the expanded scheme.
- Pensions - Finance Bill 2022 will increase the normal minimum pension age (NMPA) from 55 to 57 with effect from 6 April 2028.
- ISAs - the annual ISA adult subscription limit for 2022/23 will remain unchanged (since 2017) at £20,000. The limit for Junior ISAs (and Child Trust Funds) for 2022/23 will remain unchanged at £9,000.
- Economic crime levy – to be introduced from 2023 on entities subject to AML regulations (such as lawyers) which have UK revenue above £10.2million.
IHT excepted estates
The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021 were laid before Parliament on 20 October and widen the "excepted estates" criteria for deaths on or after 1 January 2022 so that a broader category of estates are excepted from completing a detailed IHT400 account before probate, and can complete the shorter form IHT205. The Regulations make the following changes to the "excepted estate" rules.
- Small estates (where the gross value does not exceed the IHT threshold) - the value limit in relation to both trust property and specified transfers is increased from £150,000 to £250,000.
- Exempt estates (where the gross value exceeds the IHT threshold but the net value after liabilities and spouse/ charity exemptions does not exceed the IHT threshold) - the value limit in relation to: i) the gross estate is increased from £1 million to £3 million; ii) chargeable trust property is increased from £150,000 to £250,000 (but the total amount of trust property including exempt amounts is limited to £1 million); and iii) specified transfers is increased from £150,000 to £250,000.
- Non-dom estates (where the gross value of the estate in the UK, consisting only of cash or quoted shares or securities, is not greater than £150,000) - an estate will not qualify as an excepted estate where the deceased either owned indirect interests in UK residential property or made gifts of UK assets totalling in excess of £3,000 in the seven years before their death.
The Regulations also simplify the information to be submitted on the IH205 for both small and exempt estates. HMRC has published a tax information and impact note (attached) with guidance on the new measures. Amended IHT excepted estates regulations in force on 1 January 2022 | Practical Law (thomsonreuters.com)
1975 Act cases
There are two cases of relevance under the Inheritance (Provision for Family and Dependants) Act 1975, which are as follows.
- Higgins v Morgan, 2021 EWHC 2846 Ch is an example of a successful 1975 Act claim by an adult who was treated by the deceased as a child of the family (section 1(1)(d), Inheritance Act 1975). The Court ruled that the claimant was entitled to a reasonable provision award representing around 25% of the estate. The case is significant in respect of two points: i) the weight given to the deceased's intentions in respect of the claimant; and ii) the inclusion of a CFA success fee in the award. Inheritance Act: court considers significance of deceased's expressed intentions (County Court) | Practical Law (thomsonreuters.com)
- Kaur v Bolina & Anor  EWHC 2894 (Fam) (29 October 2021) (bailii.org) is an example of a 1975 Act case where the prescribed period for making a claim (six months) was extended, by five months in this case. The time extension was granted to the deceased's widow notwithstanding that probate had been granted and the estate distributed to the deceased's children from a previous marriage. Directions were given to advance the matter to trial.
Interpretation of Wills
Partington v Rossiter, 2021 EWCA Civ 1564 is an example of a Will interpretation case where "UK assets" was interpreted by the Court of Appeal to include Jersey based on the clear intention of the testator. Although Jersey is not part of the UK, the testator's intention was beyond doubt as the Will made specific legacies of his Jersey assets. Partington v Rossiter  EWCA Civ 1564 (29 October 2021) (bailii.org)
HMRC has confirmed it will issue "nudge" letters in November to cryptocurrency investors, encouraging them to examine whether they have paid the correct amount of CGT and income tax on their cryptocurrency holdings. HMRC can obtain a full list of holders by sending data requests to UK-based cryptocurrency exchanges and other financial institutions. Guidance on the taxation of cryptoassets is set out in HMRC's recently published Crypotoassets Manual. However, the issue of situs is controversial as STEP's "Guidance Note: Location of Cryptocurrencies – an alternative view" (3 September 2021) explains. HMRC confirms issuance of “nudge” letters to cryptocurrency investors | Insights | UHY Hacker Young (uhy-uk.com)