The Register of Overseas Entities - What does it mean for you?

Well, it seems HMRC has well and truly joined the digital age, what with Making Tax Digital, the Online Trusts Register, and now we have another to add to the list - the Register of Overseas Entities!

Great I hear you grumble, another load of compliance that accountants and their clients need to deal with. So, what is this all about?

What is the Register of Overseas Entities?

The Register of Overseas Entities came into force in the UK on 1 August 2022 through the new Economic Crime (Transparency and Enforcement) Act 2022. Overseas entities who want to buy, sell or transfer property or land in the UK, must register with Companies House and tell them who their registrable beneficial owners or managing officers are.

Unfortunately, this will also apply retrospectively to overseas entities who bought property or land on or after:

• 1 January 1999 in England and Wales
• 8 December 2014 in Scotland

So, this will affect most overseas entities owning property in the UK at the present time. These overseas entities must register with Companies House and tell them who their registrable beneficial owners or managing officers are by 31 January 2023.

What is an overseas entity?

This is a legal entity, such as a company or other organisation, that has a legal personality and is governed by the law of a country or territory outside the United Kingdom. It should be noted that the Republic of Ireland is considered an overseas jurisdiction for the Register of Overseas Entities.

Therefore, if you hold assets via an offshore company or trust you should read this blog very carefully!

What is a beneficial owner?

A beneficial owner is any individual or entity that has significant influence or control over the overseas entity. It can be:

• an individual person
• another legal entity, such as a company
• a government or public authority
• a trustee of a trust
• a member of a firm that is not a legal person under its governing law

You must register any beneficial owner that meets one or more of the conditions known as the ‘natures of control’. I won't repeat these here because they are rather long-winded, but full details can be found here. 

What information will be shown on the public register?

Most of the information given to Companies House about overseas entities, beneficial owners and their managing officers will be publicly available on the Register of Overseas Entities. However, it has been stated that the Register of Overseas Entities WILL NOT show any of the following:

• home addresses
• full dates of birth - only the month and year will be shown
• the agent assurance code
• the date verification checks were completed
• information about trusts - however it may be shared with HMRC
• email addresses

So, if you think this might apply to you I urge you to speak to your accountant or tax adviser at your earliest convenience - if they have no idea what this is about, then it might be a good idea to seek out a specialist adviser.

There's a lot going on in tax right now...

There's a lot going on in the world of tax at the moment, and more to come in the next 12-18 months. Here's a quick rundown on some of the issues that could affect you a the moment...

Capital Gains Tax reporting 

Last years’ Autumn Budget saw the announcement of the CGT reporting extension affecting everyone who makes a capital gain after selling property. Previously, the deadline was just 30 days for property sellers to report the gains made on a sale and pay the taxes owed. This has been increased to 60 days, meaning anyone who sells a second home or buy-to-let property has two months to submit a residential property return to HMRC and make the necessary tax payments. However, taxpayers should beware as this extension only affects properties sold on or after October 27, 2021, with those who have sold a property between April 6, 2020 and October 26, 2021 still being held liable to the 30 day rule. 

National Insurance rates and threshold

On April 6, National Insurance rates are set to rise by 1.25 percent to help fund the Government’s plans for health and social care. This is a temporary rise which will be replaced in April 2023 by the health and social care levy which will be imposed on working pensioners too. The lower earnings limits for National Insurance contributions will also be rising by 3.1 percent with the upper earnings threshold being frozen for the time being at £50,270. Currently, class one rates are imposed on those earning between £9,568 and £50,270 per year, which will change to £9,880 and £50,270 per year. Class one contributions are currently 12 percent but will rise to 13.25 percent but for those earning over the upper threshold will see a rise from two percent to 3.25 percent.

Dividend tax rates

These rates are also due to rise by 1.25 percent in April, meaning investors that earn money from company shares above the unchanging threshold of £2,000 will need to pay tax depending on their income tax band. Those on the basic rate tax band will pay 8.75 percent instead of 7.5 percent, and higher rate earnings will pay 33.75 percent instead of the current 32.5 percent. Additional rate taxpayers will also see their rates climb from 38.1 percent to 39.35 percent.

Inheritance Tax Reporting

The new rule for inheritance tax (IHT) reporting came into effect at the beginning of 2022, concerning a change in how ‘excepted estates’ are classed. The rule change now means that excepted estates will not require heirs to report the estate’s value as long as no IHT is due and there is no other reason for it to be reported. For an estate to count as excepted after January 1, 2022, it must:

• Be valued below the IHT threshold
• Worth £650,000 or less with any unused threshold being transferred from a spouse or civil partner who has died worth less than £3million
• The deceased left everything in their estate to a surviving spouse or civil partner that lives in the UK or to a qualifying charity
• Have UK assets worth less than £150,000 with the deceased having permanently lived outside of the UK when they died. 

Is NI increase really a tax hike? It might be time to think again…

 After this week’s announcement about a national insurance rise from 2022 I thought I’d try and put it in perspective…

I started working in tax in the UK in 2000. Back then the personal allowance was £4,385, basic rate tax was 22%, and NI was 10% for employees and 12.2% for employers…

From next April we’ll have a personal allowance of at least £12,570, basic rate tax of 20%, and NI of 13.25% for employees and 15.05% for employers

On the face of it, it would seem that overall employee taxes are higher now than they were 20 years ago!

However, this is simply not true. 

Expressed as a total percentage of gross income for the UK average salary (using government figures) was 25% in 2000 and will be 21% from April 2022. So the average person in the UK will still be paying less employment tax as a percentage of income than they were 20 years ago, despite a nearly 60% increase in average earnings over the same period!

It’s a different story for employers though. When factoring in the changes to the NI primary threshold, even though employer contributions have increased from 12.2% to 15.05% over the period when expressed as a percentage of gross salary it has stayed flat at 10%!

Yes, I know I’m talking in percentages, and in cash terms, it’s very different, but in real terms (taking inflation into account) the average UK worker and their employer are still paying less in employment taxes (as a % of gross income) than they were 20 years ago!

Government confirms National Insurance increases to cover social care costs

The launch of a social care levy from 2022 will see taxpayers facing a 1.25% tax charge under government plans, while dividend tax will also rise.

From April 2022, the government will introduce a new, UK-wide 1.25% Health and Social Care Levy, ringfenced for health and social care. This will be based on National Insurance contributions (NICs) and from 2023 will be legislatively separate. 

All working adults, including those over the state pension age, will pay the levy and the rates of dividend tax will also increase by 1.25% to help fund this package.

There will also be changes to the amount of savings people can retain when facing a move into care costs and a cap on total cost liability for anyone paying for care home accommodation and care.

The new tax is set to raise £12bn a year and marks a major departure from the Conservatives' manifesto which committed to the triple lock on income tax, national insurance and VAT.

Further details can be found at https://www.gov.uk/government/news/record-36-billion-investment-to-reform-nhs-and-social-care.

Trust me, you need to read this...

I get a lot of inquiries from new clients about trusts, both in the UK and further afield (dare I say the word that shall not be mentioned "offshore"?).

These can revolve around whether they would be beneficial to their tax planning for the future, or protecting assets for vulnerable beneficiaries for example. However, in recent months I have started to see a worrying trend in these inquiries, so much so that I thought it was worth writing a blog post about it...

So, what is it that has me so concerned I hear you ask? Well, in the space of 5-6 weeks I seem to have come across several new clients who have a trust as part of their estate and financial planning who have had absolutely no tax advice concerning the ongoing management of their trust. Usually, this is a result of the said trust having been set up by the bank, an insurance company, or in at least one case their stockbroker/financial adviser. Sure, they've had inheritance tax advice about putting the assets into a trust, but that seems to be where it stopped.

This can lead to more than one issue, here's a list of the potential problems:

• The trust hasn't been registered with HMRC for income and capital gains tax, as a result of which no self-assessment tax returns have been filed by the trustees;
• If you have a discretionary trust, or any kind of lifetime trust created from 2008 onwards, then you may have missed a 10-year charge event;
• If you have the above types of trust and have paid capital out of the trust to the beneficiaries at any point, then you might have missed an exit charge event.

These are just the three main issues that I am seeing come up, and to be honest as a tax, trust & estate expert it is more than a bit worrying. These are the handful of cases that get picked up, either because they've sought further advice, or they have suddenly realised there is a problem and want to correct it! Unfortunately, HMRC doesn't accept ignorance as a justifiable excuse, so all of these transgressions come with penalties and interest attached too!!!

So, if you have a family trust, and what I've listed above sounds quite familiar, then I urge you to get in touch, either with me, or your accountant, or just your nearest neighbourhood Tax-Superhero!

With the upcoming extension of the HMRC's trust registration project its in your interest to tell them before they find you (oh, and did I mention that trustees can be personally liable to HMRC and the trust beneficiaries for these types of transgression?)

Budget 2021 Update!

Well, after what a lot of the media and tax profession expected earlier in the year, Rishi Sunak's latest budget was a bit of a damp squib. I won't get into the political stuff, after all this is a tax blog and I'm sure that there are many better qualified than me to get into that debate!

So, what did we see from the Chancellor yesterday? Well, in the short term very little, as the principal changes for most people seem to have been restricted to freezing of tax allowances and tax bands, with no changes to rates of income tax, national insurance, or VAT. What happened to the much-vaunted changes heralded in the Office for Tax Simplification's (OTS) report on Capital Gains Tax (CGT)? Pretty much nothing, other than again freezing the CGT annual allowance for the near future. the same is true of Inheritance Tax (IHT), as we look forward to another twelve months of stagnation there too.

The biggest hit was reserved of course for Corporation Tax, and let's be honest that is a big old tax hike for business, but is it really? I only say that as none of the tax reliefs available to businesses have been scaled back, indeed additional reliefs have been added in or existing ones boosted. So, the matter of Corporation Tax remains one of choice, if you are reinvesting in assets, staff, or research and development that tax increase won't bite quite so hard. If anything it should increase the incentive for investment in existing corporate businesses. It's definitely 'glass half full' rather than 'glass half empty', but of course there will always be those who insist that it isn't their glass, their glass was bigger, and it was full t the brim!

That being said, this is very much a budget of its time. The UK economy is still greatly affected by the circumstances foisted upon us by the pandemic, and I am sure we will see further repercussions of the 'Brexit Experiment' as world economies start to open back up, so to go in hard on tax policy at this time would have been foolish on the Chancellor's part.

However, I'd caution it's still not safe to go back in the water just yet, but hopefully, it has given taxpayers a 6-12 month breathing space to follow through on any tax planning before the rulebook gets rips up again! Since Christmas I have seen a lot of clients trying to rush through projects that have been in the making for sixth months or more, all to get them done before budget day, my recommendation would be not to take your foot off the gas just yet...

Inheritance Tax - A Simple Guide

Inheritance Tax (IHT), no-one likes it, and more and more of us are paying it thanks to a freeze in the threshold that has lasted almost as long as the last ice age (cue wooly mammoth stage right*)!

In all seriousness, the nil rate band for inheritance tax hasn't gone up since 6 April 2009. The purpose of this blog isn't to tell you about the latest tax planning whizz (you have to pay me for that), but rather to outline the basics of inheritance tax to the uninitiated. If you're worried about IHT, then you should probably read on McDuff...

Inheritance tax is, as I'm sure you'll know, a tax on the estate of the deceased. So, technically it's not your problem! However, if you love your nearest and dearest more than the taxman, you won't want them to pay any more of it than is neccesary (note: I'm sure someone loves the taxman, if only it's his Mum). HM Revenue & Customs helpfully state:

        There’s normally no Inheritance Tax to pay if either:

• the value of your estate is below the £325,000 threshold
• you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

So, if that's you, job done, thanks for reading!

Oh, some of you are still here? Well, I suppose I better continue then...

Well, if your estate exceeds the £325,000 threshold (or nil rate band) then IHT is definitely a worry, but don't worry there's plenty that you can do about it:

• If you're lucky enough to own a house, then in addition to the IHT nil rate band (NRB) a residence nil rate band (RNRB) was introduced from 6 April 2017. This is available when residential property is left to direct descendants and currently gives up to a further £175,000 of tax free allowances.
• Married couples and civil partners are allowed to pass their estate to their spouse tax-free when they die. So, in effect, your surviving spouse can inherit your entire estate without having to pay IHT. You can also pass on your unused NRB and RNRB to your surviving spouse or civil partner.
• While you’re alive, you have a £3,000 ‘gift allowance’ each year. This is known as your annual exemption.This means you can give away assets or cash up to a total of £3,000 in a tax year without it being added to the value of your estate for IHT purposes.
• You can make gifts in excess of the £3,000 annual exemption, but they'll only be exempt if you live more than seven years from when you make the gift, otherwise your children or family might have to pay IHT on your gift when you die.

That's pretty much the basics of what you can do yourself, anything else is likely to require the assistance of a practitioner of the dark arts (a tax adviser, like me) to help you navigate the pitfalls of trusts, family investment companies and tax efficient investments. There are plenty of other blogs on here covering those subjects so please feel free to check them out, here are a couple of get you started:

• Trusts
• Family Investment Companies

I hope you've found this blog useful, and irreverently light hearted given the subject matter, and if you have any more questions I'd be more than happy to answer them, drop me a note via the contact form on the blog...

(*if the jovial tone of this blog seems a bit off kilter please accept my apologies, I've been reading Terry Pratchett again!)

Family Investment Companies: HMRC are still lurking in the shadows...

HMRC hve been revealed that a secret unit has been created to assess the risks of Family Investment Companies (FICs) to the tax system in the UK, with particular reference to their associated inheritance tax (IHT) benefits. If you're reading this and wondering what a FIC is, then you can find out more about that here.

FICs have become increasingly popular with wealthy families in the last ten years, primarily as a result of changes to the taxation of trusts. As you would expect their rise in popularity corresponds to a matching decline in the use of trusts in the UK. Both of these structures are regularly used to achieve a similar objective: a desire by parents to pass assets down to the next generation whilst retaining some control of those assets during their lifetime. The principal difference is in how the two are taxed!

I would go so far as to state that is is largely a problem of HMRC's own making though. We have seen a great decline in the number of tax-paying trusts in the UK since significant changes were made to the system in 2006, primarily the biggest hurdle being a potential 20 per cent upfront tax charge can arise on assets settled on trust where they are over and above £325,000 (per settlor).

Anyway, why should we be bothered about HMRC's "secret unit"? Well, there are many reasons, not least of which let us take a look at how the "loan charge" debacle played out. The Revenue are starting to develop a reputation for not playing nicely. That said, we know that there has been a long standing review of the IHT system, and several looks at the taxation of trust. In my opinion this will just be an extension of that existing review, after all it would seem churlish to review trusts, but not the tax planning vehicle of choice for wealthy families that replaced them in their armoury. I for one will be very interested to see the outcome of any review!

Stamp Duty Land Tax: ANOTHER Covid Update (Thanks Rishi!)

Rishi Sunak has announced a temporary holiday on stamp duty on the first £500,000 of all property sales in England and Northern Ireland (but not Scotland and Wales as they operate a different system).

In effect, this means that the threshold on which no tax is charged has been temporarily raised until March 2021 from £125,000 to £500,000 to boost the property market and help buyers struggling because of the COVID crisis.

It is unclear (at the moment) as to whether this will apply to second homes or properties purchased through a company, and I for one will be astounded if it does. However, the documents from today's speech do state:

"Temporary Stamp Duty Land Tax (SDLT) cut – The government will temporarily increase the Nil Rate Band of Residential SDLT, in England and Northern Ireland, from £125,000 to £500,000. This will apply from 8 July 2020 until 31 March 2021 and cut the tax due for everyone who would have paid SDLT. Nearly nine out of ten people getting on or moving up the property ladder will pay no SDLT at all."

Regardless of that, the surcharge will still very much apply, so the 3% rate will still get charged on second homes and company purchases of residential property as it is only the nil rate band that is being amended, not the rate itself.

Chancellor Rishi Sunak said: "The average stamp duty bill will fall by £4,500. And nearly nine out of 10 people buying a main home this year, will pay no stamp duty at all."

So the more you pay - up to the new £500,000 threshold - the more you could save on stamp duty. For example, before the stamp duty holiday, if you bought a house for £275,000, for instance, the stamp duty you'd have had to pay would have been £3,750.

• 0% duty on the first £125,000;
• 2% on the next £125,000, so £2,500; plus
• 5% on the final £25,000, so £1,250 (a total of £3,750).

Stamp Duty Land Tax Reclaims: A Covid Update

If you've been caught with an SDLT surcharge as a result of purchasing a second property then there may well be a bit of relief available to you if the COVID lockdown in the UK has meant that you have exceeded the three-year reclaim window.

There have been some relaxations in respect of COVID for most taxes, and following a written ministerial statement by the Financial Secretary to the Treasury and in light of the coronavirus pandemic's impact on the housing market, HMRC has updated its guidance on exceptional circumstances for claiming an SDLT refund outside of the normal time limits. This will allow homeowners to apply for a refund of the higher rate of SDLT even if the previous home was not sold within the three-year time limit, where that period came to an end on or after 1 January 2020.

HMRC has updated its guidance on exceptional circumstances that allow refunds following a sale outside of the normal three-year limit to specifically include the impact of COVID-19 preventing the sale. The updated guidance can be found here.

The written ministerial statement also advises that once this reason has ended, the previous home must be sold as soon as practicable to be able to apply for the refund. The claim must include an explanation of why the taxpayer was unable to sell the previous home within three years. Decisions will be made by HMRC on a case-by-case basis.

It is not exactly a panacea, but where the sale or marketing of the sale was delayed by COVID, then we can apply for a refund in writing, the forms for which can be found here.