6 September 2017
Graeme Robb, Senior Technical Manager at Prudential considers current items of interest.
The Queen’s speech 2017
This confirmed that the legislative programme will include three Finance Bills over the next two years to implement budget decisions. One of these will be a Summer Finance Bill 2017 which will be introduced as soon as possible after the summer parliamentary recess which ends on 5 September. This will legislate for all policies that were included in the pre-election Finance Bill which had to be hastily slimmed down due to a lack of parliamentary time following the announcement of the snap election.
The government has also re-confirmed that all policies originally announced to start from April 2017 will be effective from that date.
Insurance Bond part surrenders – new rules for ‘wholly disproportionate gains’?
In our April 2017 edition, we explained how a significant partial withdrawal can inadvertently create a chargeable event gain. In the case of Joost Lobler, he accidentally triggered a gain giving rise to an effective tax rate of 779%. Following the conclusion of the case, HMRC consulted on how similar situations could be avoided in the future and initially Finance Bill 2017 contained provisions for ‘wholly disproportionate’ gains to be recalculated on a just and reasonable basis. This was one of the measures dropped from the slimmed down final version of the Finance Bill (see above).
HMRC have prepared draft guidance to accompany the proposed legislation. This has been circulated for comment to interested parties via the ABI. If the legislation proceeds and the guidance becomes final, we will share this information in a future edition of Oracle Technical.
Online Trust Register
In our May 2017 edition, we wrote about HMRC’s new trust register and what it will mean for trustees.
The online register has now been launched. Lead trustees will have until 5 October 2017 to register new trusts, and 31 January 2018 to report beneficial owners and assets of existing trusts. Non-UK trustees remain outside the registration requirements until they become subject to UK tax liabilities in relation to the trust.
HMRC Tax & NIC receipts
Figures published by HMRC on 21 June 2017 revealed that in the 12 months to May 2017, IHT receipts totalled £5.1bn meaning that the £5bn threshold for 12 months was broken for the first time. Another interesting aspect is that if you add up the receipts in April 2017 & May 2017, the figure of £1,088,000 is 34% higher than the April/May 2016 equivalent of £810m.
Clearly IHT is a tax which will be of increasing concern for clients.
Inheritance Tax – The Residence Nil Rate Band (RNRB)
The HMRC Inheritance Tax Manual has now been updated to include detailed guidance on the RNRB.
A couple of interesting points which arise are as follows:
For UK domiciled individuals, who are subject to IHT on their worldwide assets, it does not matter where the home which is left to direct descendants is located. For non-UK domiciled individuals, who are subject to IHT only on their assets in the UK, the home which is to be left to direct descendants must be situated in the UK in order to be within their estate for IHT purposes and hence to be able to qualify for the RNRB. The subject of domicile is explored in our technical centre.
The £2m taper threshold applies to the value of the estate after liabilities. It is not possible however to deduct any exemptions (e.g. spousal exemption) or reliefs (e.g. Business Property Relief). A person’s estate is the aggregate of all the property to which a person is beneficially entitled. This includes any settled property in which the person had a qualifying interest in possession and any gift with reservation property, but does not include excluded property. It does not include the value of any chargeable lifetime transfers (CLTs) or failed potentially exempt transfers (PETs) which aggregate with the estate on death. Lifetime gifting to avoid exceeding the £2m threshold is therefore possible even if the individual does not survive for seven years.
Scottish tax devolution
The Scottish Parliament has now approved the Air Departure Tax (Scotland) Bill which will enable Air Departure Tax (ADT) to be wholly administered and collected north of the border. It will take effect from April 2018. ADT will therefore be a fully devolved tax. In contrast, income tax has been partly devolved and the salient points for advisers with clients who are Scottish taxpayers are covered in our technical centre.
For more technical help by Prudential’s experts visit the PruAdviser website where you can find generic articles and analysis of legislation and consultations.