Estate Planning Guide

15 14 THE ESTATE PLANNING LANDSCAPE THE ESTATE PLANNING LANDSCAPE It’s the unused percentage of the additional threshold that’s transferred, not the unused amount. HMRC describes the calculation in two steps: Step 1. Work out the percentage of additional threshold that wasn’t used when the first of the couple died. You do this by dividing the unused amount of additional threshold by the total additional threshold that was available when the first of the couple died and multiplying the result by 100. If the person died before 6 April 2017 the unused additional threshold and total available additional threshold are both deemed to be £100,000 so the unused percentage is 100%. Step 2. Multiply the percentage of additional threshold that was unused when the first of the couple died by the maximum additional threshold available at the time of the survivor’s death. This gives you the sum available to transfer. For further details, see: https://www.gov.uk/guidance/inheritance-tax- transfer-of-threshold#history Transfer of unused RNRB Families cannot afford to be complacent; the time for advice and financial planning is now. There are few more confusing, or unpopular, taxes than IHT. TONY MUDD, ST JAMES’S PLACE Finance Act 2018 PENSIONS ADVICE ALLOWANCE The tax exemption for the first £150 worth of pensions advice provided to an employee in a tax year increased from 6 April 2017 to £500. This replaced the cap on tax-free employer-arranged advice, and also allows for advice on general financial and tax issues relating to pensions. ’NON-DOM’ RULES, OFFSHORE TRUSTS AND EXCLUDED PROPERTY With retroactive effect from 6 April 2017, there have been changes to the rules defining and taxing non-UK domiciled persons (’non-doms’). From that date, people who have been resident in the UK for at least 15 of the previous 20 tax years, will be treated as UK domiciled for the purposes of all taxes in a tax year – IHT as well as IT and CGT. This will bring UK estate planning into the scope of some who would not previously have been subject to UK IHT. Non-doms leaving the UK before 6 April 2017 will not be subject to the new ‘15 out of 20’ test provided they do not return. However, if they return they will be deemed domiciled in the UK in the tax year they resume residence if they have not been non-UK resident for at least six full tax years out of the previous 20 tax years. Those deemed domiciled under the 15- year rule who hold UK trust property outside the UK in a trust which was created when the settlor was neither UK domiciled nor deemed UK domiciled, will retain the excluded property status of the asset in trust. In addition, on the same day, non-doms born in the UK and who have a UK domicile of origin became liable for UK income tax and CGT in the same way as UK domiciled persons in any tax year in which they are UK resident, provided they have been UK resident in at least one of the two immediately preceding tax years. The same also applies to IHT. These persons are referred to as formerly domiciled residents or returning UK doms. Any trust, settled by formerly domiciled residents, and holding foreign assets will no longer be regarded as an excluded property trust (for IHT purposes) for a tax year in which the formerly domiciled resident is UK resident. Excluded property status will be reinstated for any year the settlor is no longer UK resident. Moreover ’look through’ rules were introduced so that, where UK residential property is held for non-doms within an overseas company or structure (close company or partnership, or equivalent entity), whether or not an offshore trust is involved, IHT is applicable. It is the interest in the shares in the holding entity itself that is treated as a chargeable asset. As a result, that asset must be valued and the proportion which is attributable to UK residential property must be calculated. But, IHT will only apply if the interest is more than 5% of the total interests in the entity, although the interests of connected persons such as spouses, relatives and descendants will be taken into account. Where an interest in an entity holding UK residential property has been sold, the proceeds of sale remain within the scope of IHT for the two years following the disposal. These actions represent another clear widening of the IHT net and have a direct effect on excluded property trusts*. Non-UK domiciled clients can still access various packaged Excluded Property trust arrangements through the Isle of Man or Dublin-based subsidiaries of some of the major insurance companies. Updated Guidance for Disclosure of Tax Avoidance Schemes (DOTAS) rules The criteria for notifying HMRC of certain types of IHT planning changed from 1 April 2018. To be notifiable, the IHT advantage must be one of the arrangement’s main benefits. It must also satisfy two further conditions or ’hallmarks’: • The tax advantage gained is related to either the ’relevant property’ IHT charges on assets placed in trust; gifts with reservation of benefit; or transfers that reduce the estate’s value without giving rise to a chargeable transfer or a PET. • The arrangement involves one or more ’contrived or abnormal steps’, that are required to facilitate the tax advantage. Deciding these factors is up to a hypothetical ’informed observer’ who is not supposed to be an expert or tax practitioner, but is presumed to be ’independent’ and to have access to all the information that is available to the scheme’s promoter. Hence, a standard trust arrangement involving, for example, a gift into a discretionary trust would not on its own meet the condition as it would be an immediately chargeable transfer. This wording also suggests that the making of a loan to trustees of a trust that an individual has set up, or to a company to which the individual has a connection would not be reportable on the basis of their being commonplace. In addition, making an investment into particular assets in order to gain IHT relief, on its own, would be neither contrived nor abnormal. *’Excluded property’ is the termused in IHT legislation to describe assets that are outside, or excluded from, the scope of IHT (in certain circumstances). .