A summary of key legal updates for the Private Client industry over the past two weeks is as follows. 

Tax policy - Autumn Statement

The Chancellor Jeremy Hunt delivered his much-anticipated Autumn Statement on Thursday 17 November. This included a raft of tax rises and tax allowance freezes taking the UK's tax burden to its highest level since 1948. The Statement also included the Office for Budget Responsibility's confirmation that the UK economy is already in a recession that will last over a year. We summarise here the announcements affecting income tax rates and allowances, the dividend tax-free allowance, the capital gains tax ("CGT") annual exemption, the inheritance tax ("IHT") nil-rate band, and the mini-Budget stamp duty land tax cuts. In the Autumn Statement documents published after the speech, there was a CGT avoidance measure affected non-UK domiciliaries and our summary here explains this announcement on share for share exchanges in more detail. In a departure from the fiscal timetable announced in 2017, the 2022 Autumn Statement is expected to be followed by a Spring Budget in 2023. Autumn Statement 2022: documents - GOV.UK (www.gov.uk); UK government to cut CGT tax allowance from April 2023 | STEP; 2022 Autumn Statement (Medium-term Fiscal Plan): key private client announcements | Practical Law (thomsonreuters.com); Autumn Statement 2022 | Evelyn Partners

Tax – IHT clearances and time limits

The Chartered Institute of Taxation has published an HM Revenue & Custom ("HMRC") response to questions raised by the Society of Trust and Estate Practitioners ("STEP") about time limits for HMRC to pursue underpayments of IHT. Under s.240 Inheritance Tax Act 1984, HMRC generally have between four and twenty years to claim underpaid IHT but it was unclear when the time limits start to run and also how s.240 interacts with the special 12-week window introduced from April 2018 (for IHT400s) and April 2022 (for IHT100s) after which taxpayers can assume that HMRC do not have any questions to ask about the IHT account. Some key points from the HMRC response are as follows.

  • The s.240 time limits apply even where no tax was initially payable (due to exemptions) and a clearance certificate was not applied for.
  • In most cases HMRC's time period for pursuing underpayments will run from the date of the stamped IHT421 but not where an asset is omitted but later disclosed.
  • The special 12-week window for IHT400s (referred to above) only applies where HMRC has indicated that it is looking at the account in more detail. 
  • If HMRC fail to issue a stamped IHT421, the taxpayer should apply for clearance. After clearance, HMRC cannot raise further queries provided no assets were omitted.
  • In relation to an IHT100, HMRC will advise taxpayers if a 12-week window applies. If no questions are raised within this time, taxpayers can assume that the time period for pursuing underpayments will run from that point.
  • If HMRC does not advise taxpayers about the 12-week window for an IHT100, the onus is on the taxpayer to seek clearance.
  • For excepted estates, there is automatic discharge after 60 days following the issue of the grant of probate. The effect of this discharge is the same as a clearance certificate. HMRC clarifies time limits for pursuing underpayments of IHT | Practical Law (thomsonreuters.com)

Tax compliance – UK signs up to the OECD Mandatory Disclosure Rules

On 9 November, the UK signed the multilateral competent authority agreement ("MCAA") supporting the OECD's model mandatory disclosure rules ("MDR"). The MCAA was also signed by 15 other jurisdictions and paves the way for the MDR to be implemented in the UK to replace the UK's current DAC6 (Council Directive (EU) 2018/822) legislation. The government originally announced that this was their intention in December 2020. Under the MCAA, each signatory jurisdiction must collect information from intermediaries that have identified arrangements (including those relating to crypto assets) to circumvent the Common Reporting Standard and structures that disguise the beneficial owners of assets held offshore (equivalent information to that required under "hallmark D" under DAC6). Those jurisdictions will pass information annually to the taxpayers' jurisdictions of tax residence so that any unpaid/ underpaid tax can be collected or the arrangement can be analysed and appropriate counters developed. In November 2021, the government consulted on draft legislation implementing the MDR and the government published a summary of responses this morning. The legislation (The International Tax Enforcement (Disclosable Arrangements) Regulations 2022) will come into force in the first half of 2023 and will repeal the UK's DAC6 legislation (the International Tax Enforcement (Disclosable Arrangements) Regulations 2020). In a similar manner to DAC6, there will be a retrospective element to the reporting and arrangements that were entered into from 25 June 2018 and that engage the MDR will need to be reported, as well as arrangements going forwards. This is an improvement on the originally proposed look-back date, which was 29 October 2014. HMRC will be providing guidance on the rules in due course. UK signs multilateral agreement to exchange information on CRS avoidance arrangements and opaque offshore structures | Practical Law (thomsonreuters.com); Jurisdictions agree to exchange information on digital platforms and CRS avoidance | STEP; A fuller picture | STEP

Trusts – deeds of appointment set aside for mistake

In Hopes v Burton [2022] EWHC 2770, the High Court set aside, on the grounds of mistake, two deeds of appointment in respect of a life interest trust of an insurance policy worth £2.5million. The deeds unintentionally terminated existing qualifying interests in possession (QIIPs) and appointed new, non-QIIPs in their place. The new non-QIIPs would be subject to the IHT relevant property regime and, as a result, would trigger an immediate IHT charge of £365,000, plus interest of over £68,000, together with ten-year anniversary charges and exit charges going forwards. The trustees made a Part 8 claim to set aside the deeds on the basis that they made an "operative mistake as to their substance or effect". HMRC did not contest the claim. The Court applied the principles in Pitt v Holt [2013] UKSC 26 for rescission of a voluntary disposition on the grounds of mistake. Deeds of appointment set aside after mistake as to IHT consequences (High Court) | Practical Law (thomsonreuters.com)

Trusts – updated HMRC TRS guidance

On 17 November, HMRC published the following updates to its Trust Registration Service ("TRS") Manual.

  • Registering a Will trust - when there is a Will trust which needs to be registered in addition to a complex estate, the complex estate unique taxpayer reference should not be used when registering the Will trust (see TRSM27030).
  • Discrepancy reporting – when taking on a new trustee client, "relevant persons" are under an obligation to request the trust's TRS "proof of registration" document and if there is a "material discrepancy" between that document and the information they hold on the trustees, this should be reported to HMRC. The Manual has now been updated to clarify whether a different trust name on the proof of registration document amounts to a "material discrepancy" (for example, the name may be shortened or a variation of the original name). A material discrepancy would only occur in this scenario if "a reasonable person could conclude that the trust name is incorrect, or the name could refer to a different trust" (see TRSM70050).
  • Discrepancy reporting - if a relevant person takes on a trustee client that is an unregistered trust, the relevant person should decide (including by discussing with the trustees if appropriate) whether they are reasonably satisfied that the trust is not required to register. If they are not so satisfied, they should make a discrepancy report to HMRC (see TRSM70070). Trust Registration Service Manual - HMRC internal manual - GOV.UK (www.gov.uk)