A summary of key legal updates for the Private Client industry over the past two weeks is as follows.
Tax Policy – Finance Act 2023
On 10 January 2023, the Finance (No 2) Bill 2022 received Royal Assent and became the Finance Act 2023. The private client measures in the Act include:
- Clause 5 - the income tax basic rate limit and the freeze on the personal allowance (£12,570) for tax years 2026-27 and 2027-28;
- Clause 6 – the reduction in the threshold at which the income tax additional rate (45%) is charged from £150,000 to £125,140;
- Clause 7 - the reduction in the dividend nil-rate from £2,000 to £1,000 from April 2023, and then to £500 from April 2024;
- Clause 8 – the reduction in the capital gains tax ("CGT") annual exempt amount from £12,300 to £6,000 from April 2023, and then to £3,000 from April 2024; and
- Clause 9: the inheritance tax ("IHT") nil-rate band and residence nil-rate band are frozen at their current levels (£325,000 and £175,000 respectively) until 2027/28.
Offshore – ROE deadline
The deadline for registration on the register of overseas entities ("ROE") is 31 January. Companies House has written to overseas entities who they believe are affected, warning them of the deadline. On 12 January, the Department for Business, Energy and Industrial Strategy published updated guidance, providing further information on a number of aspects of the ROE including: identifying registrable beneficial owners; the meaning of "significant influence or control" in relation to trusts; information required in relation to beneficiaries of trusts (including where there is a class of beneficiaries); and the verification rules. Register of overseas entities: updated BEIS guidance on registration and verification | Practical Law (thomsonreuters.com); Register an overseas entity and tell us about its beneficial owners - GOV.UK (www.gov.uk); Disposing of UK property as an overseas entity - GOV.UK (www.gov.uk)
Trusts – new TRS penalties
HMRC have issued new guidance on the penalty regime for failing to register a trust on the Trust Register, or keeping the entry up to date. Up until now, HMRC had adopted a lighter approach to penalties with there being no penalty for a first offence. Under the new regime, HMRC will charge a penalty if they decide that the failure is deliberate. This will be decided on a case-by-case basis and will involve a fixed penalty of up to £5,000 for non-compliance. There will be no interest charged on penalties. There is a review and appeals process for any disputes. HMRC issues new guidance on penalties for TRS non-registration | STEP
Compliance – Mandatory Disclosure Rules
The regulations to introduce the OECD's Mandatory Disclosure Rules ("MDR") in the UK as a replacement for the UK's DAC6 regime - The International Tax Enforcement (Disclosable Arrangements Regulations 2023) – will come into force on 28 March 2023. The DAC6 regulations will be repealed at the same time. The MDR relates to cross-border planning and requires certain arrangements to be disclosed to HMRC where they involve Common Reporting Standard avoidance arrangements and opaque offshore structures. Pre-existing arrangements will need to be reported where they breach the MDR and were implemented on or after 25 June 2018. According to an HMRC stakeholder email, new draft guidance on the MDR will be produced in the "next few weeks" and shared with interested parties. A policy paper on the MDR was published on 17 January 2023. UK government sets date for new cross-border mandatory disclosure rules | STEP; International Tax Enforcement (Disclosable Arrangements) Regulations 2023 made | Practical Law (thomsonreuters.com)
Estate administration – interest in possession under a Will treated as cancelled
In Hall v HMRC [2023] UKFTT 32 (TC) (10 January 2023), the First-tier Tribunal ("FTT") has found that there was no interest in possession ("IIP") in a property left under a Will if the executors' only option was to sell the property in order to pay the estate's IHT bill. In practice, the residuary beneficiaries of the estate had paid the IHT themselves to avoid the property being sold. The dispute arose on the death of the life tenant of the property with HMRC seeking to charge IHT of £190,000 on the life tenant's IIP. The FTT found that the deceased life tenant could not enforce a right under the Will to live in the property and therefore did not have an IIP on which IHT could be levied. No IIP arose where executors' only option to pay IHT was to sell property (First-tier Tribunal) | Practical Law (thomsonreuters.com)
Offshore – updated TOAA guidance
HMRC has published new guidance on the transfer of assets abroad ("TOAA") legislation in the International Manual INTM600000. The guidance is a rewrite of draft guidance published as part of a consultation exercise in July 2013, along with extra material on the changes that were made to the legislation in 2017 and 2018 following the introduction of the deemed domiciled rules. HMRC's "Agent Update" explains that the new guidance provides "far greater detail regarding the application of this legislation". Issue 104 of Agent Update - GOV.UK (www.gov.uk)
