Trusts? HMRC wants you...

Today I've been trying to use HMRC's new Trust Registration Service. In and of itself the process is laudable, and one hopes that it will bring great transparency to the UK where tax and trusts are concerned. Hopefully, it will also dispel the "Daily Mail" myth (other news publications are available) that trusts are only used by those seeking to avoid tax.

So, what did I think in practice when working through the new system:

1. For new trusts, it's pretty straightforward. However, we now require far more data for beneficiaries, including their dates of birth and NI numbers. So, there is a little bit of annoyance factor in having to go back to the clients and ask for details we've not been used to asking for before.
2. Existing trusts, however, are a nightmare, especially where the original inter vivos settlor has since passed away. Have you tried getting an NI number or a passport reference for someone who died several years ago? Families and advisers just haven't retained that data as it wasn't needed back then when the trusts were set up. There are also other questions being asked that the current trustees and/or advisers will simply not know the answers to if the trust is long established.

As I have said, HMRC launching the TRS is a laudable aim (which I believe has the best of intentions, although I do worry about how HMRC will use the data they collect). However, in practice, the information being asked for about existing trusts is in some cases simply not available. This prevents further progress with the registration of that trust, there is simply no option to bypass the requirement and file a part complete registration.

This will cause huge problems for agents and trustees trying to get this done by 31 January 2018, a problem that has been massively compounded by HMRC releasing the agent access months behind schedule but not extending the deadline for registration.

HMRC

I think we need a rethink on the deadline for this!

Things may go up as well as down...

I am of course talking about interest rates, following today's increase by the Bank of England from 0.25% to 0.50%. A minor change some will say, and I'm largely inclined to agree, but a good many will underestimate the impact of such a small percentage increase, which is, in fact, a 100% increase in the base rate. Sensationalistic, I hear you say? Yes, that was my intention...

There will be lots of noise made today and in the coming days about a change of direction by the Monetary Policy Committee no doubt. However, let us not lose sight of where interest rates are, how long they've been there and where they have come from (thanks to www.economicshelp.org and the ONS for the attached graphic).

We have experienced record low levels of interest for an equal record level of time during a period of a record level of central bank input. In effect, what we have seen over the last 10 years has been artificial. It's been an economy on life support!

So, in essence, we should see this as a positive move, yes? Well, that's a much more difficult question. Largely interest rates are increasing due to inflation outstripping wage growth. As with all things, economics requires that things have an equal and opposite reaction. This increase is in effect a measured step on a path to ensuring that consumer prices don't rocket as a result of a lower sterling. Now, I'm no economist, and better minds than mine will articulate this in a far more accurate manner, but in short, the interest rate rise would appear to be a result of the negative economic news.

The impact of all of this, of course, depends on which side of the fence you sit. Those with hefty mortgages will lose out, whilst those with savings will stand to see some modest benefits.

Of the 8.1 million households with a mortgage, 3.7 million, or 46%, are on either a standard variable rate or a tracker rate, so less than half will be immediately affected. Even then, according to UK Finance, the average outstanding balance is £89,000 which would see payments increase by between £11 and £12 a month. So the initial impacts are minimal on household budgets. What should be of more concern is that this will not be the only increase, and one would expect to see steady rises over the next 2 to 3 years.

It is also important to note that the Bank estimates that almost 2 million mortgage holders have never experienced a rate rise. All of this is, of course, risible if you can remember the double-digit interest rates from the 70' and 80's. However, it's impact should not be underestimated with ever spiraling house prices and mortgage levels.

As for savers, well, we'll have to sit tight and see what the high street banks offer in way of increases. As usual, I'd expect them to lag behind in terms of both amount and timing in relation to mortgage rates.