PFS What's new bulletin - July I

TAXATION AND TRUSTS

 

Round up of latest Trust Registration Service (TRS) news (AF1, RO3)

 

In this article we provide a round-up of the latest news relating to the Trust Registration Service.

 

HMRC TRS Helpcards

 

HMRC have asked the professional bodies, including CIOT and STEP, to publicise the following Helpcards on aspects of the Trust Registration Service (TRS):

 

• Closing a Trust
• Updating a Trust from Non-Taxpaying to Tax-Paying
• Obtaining Proof of Registration

 

HMRC will be providing the Helpcards to taxpayers on request, via email, and are looking to making them available through the Trust Registration Service Manual.

 

Reforming registration requirements for the Trust Registration Service

 

The HM Treasury consultation on improving the effectiveness of the Money Laundering Regulations included proposals for reforming registration requirements for the TRS. As a reminder, these include:

 

• Aligning the registration deadline for trusts created by deed of variation (which, currently must be registered on TRS within 90 days of being created) with other trusts created following the death of a settlor (which are excluded from registering on TRS for two years from the date of death);
• Clarifying that Scottish survivorship destination trusts are not required to register.
• Introducing a de minimis level for trust registration for non-taxable trusts that do not own land.

 

A number of professional bodies, including ICAEW and STEP, have responded to the consultation in support of the proposals but making a number of suggestions for improvement of the de minimis criteria including:

 

• raising the proposed £5,000 de minimis level for assets (STEP has proposed a £10,000 threshold which will align in most cases with the new rules on the taxation of trust income i.e. on the basis that a trust with a value of £10,000 is unlikely to have income in excess of £500 p.a. and so should be exempt);
• considering whether the £2,000 distribution threshold should apply to distributions made when the trust comes to an end given that this could cause a trust that was previously exempt from registration (i.e. because assets were less than £5,0000) to have to register only in the year it is wound up; and
• requiring that the de minimis thresholds are reviewed periodically (eg, 5 April) rather than on an ongoing basis.

 

STEP also recommends that the current rule that an express ‘administration trust’, which continues more than two years after death, must be registered on the TRS is reviewed; and proposes that administration trusts (i.e. where executors are directed to hold the estate upon trust to pay, discharge or provide for debts etc. before distributing the residue); or wording which leaves a legacy “upon trust absolutely” should not trigger a requirement for registration regardless of how long the administration period may last. ICAEW has also raised the point that estate administration now often exceeds two years. 

 

Comment

 

Clients and their advisers will find the HMRC TRS helpcards which provide a walk-through of the process to be followed in common scenarios such as when closing a trust on the TRS, changing a trusts status from non-taxpaying to taxpaying or obtaining a proof of registration document, enormously helpful.

 

The HM Treasury a consultation on improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 has now closed and feedback is being analysed. The Government’s response is expected later this summer.

 

 

New powers relating to Scottish trusts now in force (AF1, JO2, RO3)

 

The Trusts and Succession (Scotland) Act 2024 received Royal Assent in January 2024, however, while sections relating to succession came into force at the end of April 2024; the remaining provisions are being brought into force gradually by means of regulations. The Trusts and Succession (Scotland) Act 2024 (Commencement No. 1) Regulations 2024, made on 5 June, have, with effect from 26 June, brought into force the first tranche of provisions relating to trustee powers.

 

The most notable provisions now in force as a result of the Regulations include:

 

• Section 7 – this gives the Court power to remove an unfit trustee for reasons set out in section 8 of the Act (i.e. where an executor or trustee of a Will trust has been charged with or convicted of the murder or culpable homicide of the testator); and
• Section 9(2), (3), (4), (7) and (8)(a) – these provisions introduce a new power enabling removal of a professional trustee (such as a solicitor or accountant) from office by a majority of their co-trustees in circumstances where they are either no longer a member of their regulated profession or no longer entitled to practice. This provision was included in the legislation following the collapse of the WW&J McClure firm of solicitors.

 

 

Certain provisions relating to charitable trusts' powers to sell property have also come into force

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The Act's remaining provisions (which include power for the person who created the trust to appoint a new trustee in the scenario where no capable trustee exists or can be traced; power for a majority of trustees to remove an incapable trustees and power for the guardian of an incapable trustee to resign on that trustee’s behalf) will be brought into effect by further regulations in due course.

 

Comment

 

The long-overdue Trusts and Succession (Scotland) Act 2024 will modernise Scots trust law, eventually entirely replacing the Trusts (Scotland) Act 1921 and the Powers of Appointment Act 1874 as well as large parts various other Acts dealing with trusts and succession in Scotland.

 

The Act makes comprehensive provision for the appointment, assumption, resignation, removal and discharge of trustees; confers new powers and duties of trustees in relation to investment, advancement, trust administration and decision making and abolishes the law on excessive accumulations. Most of the provisions will apply by default, i.e. unless the trust deed makes contrary provision and irrespective of when the trust was created.

 

 

INVESTMENT PLANNING

HMRC's latest statistics on the tax-advantaged Employee Share Schemes (AF4, FA7, LP2, RO2)

 

Employee Share Schemes (ESSs) are used by companies to award shares directly to their employees or grant options to buy shares. The Government offers four share schemes that have tax-advantages to both employers and their employees:

 

• Save As You Earn (SAYE) and Share Incentive Plans (SIPs) are for all employees.
• Company Share Options Plans (CSOPs) and Enterprise Management Incentives (EMIs) are for certain employees at the discretion of the employer.

 

According to HMRC’s latest statistics, employees received an estimated £660 million in income tax relief and £420 million in National Insurance contributions (NIC) relief in the tax year ending 5 April 2023 from tax-advantaged ESSs. This is a decrease of 23% on tax relief from the tax year ending 2022. EMIs remained the largest contributor to the total cost of tax relief. The total number of companies operating ESSs in the tax year ending 5 April 2023 was 19,990. (This is an increase of 7% on tax year ending 2022. The total number of companies operating ESSs in tax year ending 5 April 2022 was 18,630.)

 

The graph below shows that despite EMI being the largest contributor to tax relief, options granted under SAYE have the largest aggregate value. This is because SAYE is used by more employees as the scheme is available to all employees in a company unlike EMI which is available for certain employees at the discretion of the employer.

Total value of options granted, relievable gains on exercise and income tax and NIC relief by scheme, tax year ending 5 April 2023:

 

For SIPs, options granted are calculated from the total value of shares awarded. Relievable gains are calculated as the total value of shares taken out of the plan. The above graph displays the total value of options granted and exercised in the tax year ending 5 April 2023. However, these two events should not be compared directly due to a time lag between grant and exercise.

 

 

PENSIONS

 

PPI: 2024 Pensions Primer

(AF8, FA2, JO5, RO4)

 

The Pensions Policy Institute (PPI) has published its annual update of the UK Pensions Primer. This guide outlines the UK pensions system and the impact of current policies. It is designed for individuals seeking to learn about or refresh their knowledge of current UK pensions policy, covering both State and private pensions. The 2024 edition reflects the status and legislated future changes to the UK pensions system as of 4 July 2024.

 

This explains both the Tier 1 provision (the State Pension, covering the pre and post April 2016 rules and associated conditions) and Tier 2 provision (including DB, DC and CDC arrangements, the difference between trust and contract-based schemes, tax-treatment and benefit options).

 

In addition, it has a comprehensive appendix section covering:

 

• Eligibility for State Pension
• State Pension age
• Impact of indexation of the State Pension
• Categories of basic State Pension
• Pension Credit
• Housing Benefit
• Council Tax Reduction
• Other first tier benefits
• The Pension Protection Fund
• Pension fund regulatory framework
• Withdrawing retirement income

 

This is a valuable document for anyone wanting to understand the complex interaction of private and state retirement provision.

 

 

FTT determines meaning of “year” for fixed protection

(AF8, FA2, JO5, RO4)

 

In Laker v HMRC [2024] UKFTT 00568 (TC), the First-tier Tribunal (FTT) upheld HMRC’s decision to revoke the appellant’s 2012 fixed protection certificate. The appellant, a member of the NHS Pension Scheme, obtained his certificate on 30 January 2012 and opted out of the scheme effective 1 February 2013. He rejoined the scheme on 1 March 2013 and opted out again for the final time on 15 August 2013, effective 1 September 2013.

 

To retain his fixed protection, the appellant needed to remain below a prescribed threshold of benefit accrual from 6 April 2012. HMRC argued that this threshold was breached due to an increase in his final year’s pensionable pay after 5 April 2012, resulting from a pay rise effective from 1 April 2013.

The scheme regulations defined “final year’s pensionable pay” as “pensionable pay in respect of the member’s last year of pensionable employment.” The appellant contended that “year” referred to 12 consecutive months, meaning his last year of pensionable employment ended on 31 January 2013, and the pension increase was below the threshold. HMRC, however, argued that "year" meant an aggregate of 365 days. This interpretation involved calculating backwards from 31 August 2013 to reach the requisite 12 months of pensionable employment, placing the appellant above the benefit accrual threshold for fixed protection.

 

The FTT held that, although the appellant's argument was logical, the scheme regulations, when read in context, supported HMRC’s interpretation. The tribunal concluded that “year” in the phrase “last year of pensionable employment” meant a combination of periods totalling 12 months.

 

WTW: Professional Trustee Survey 2024

(AF8, FA2, JO5, RO4)

 

Willis Towers Watson (WTW) has surveyed the 15 largest UK Professional Trustee firms covering nearly 2,500 professional trustee appointments. Based upon its findings, it has published its  Professional Trustee Survey 2024, which aims to understand the growing presence of professional trustees (PTs) on trustee boards of UK pension schemes and the changing landscape of the PT market. According to the survey:

• PT appointments grew by 11% in the past year and growth for corporate sole trustee appointments was even higher at 14%.
• 48% of all PT appointments are now corporate sole trustees, with the remainder of PT appointments being:
  • 27% for trustee chairs, and
  • 25% for co-trustees.
• 29% of PTs came from an actuarial or a pension consultancy background with the rest having backgrounds from:
  • 21% HR (21%),
  • 13% finance,
  • 13% legal,
  • 13% investment, and
  • 3% covenant, which are increasingly sought after.

 

Commenting on the survey, Richard Campbell, Senior Director at WTW, is quoted as saying that: “The growth in professional trustee appointments across all areas has continued at an impressive rate, underscoring a pivotal shift in pension scheme governance. This trend reflects the increased trust and reliability that employers place in professional governance to help navigate the complex pensions landscape and address governance challenges in an efficient way.”

 

LITRG: Taking a pension under age 55? Watch out for scams!

(AF8, FA2, JO5, RO4)

 

HMRC The Low Incomes Tax Reform Group (LITRG) an initiative of the Chartered Institute of Taxation has recently published an explanation of Pension Liberation Fraud (AKA Pension Scams) and it is to be hoped that this will raise the awareness of risks of those struggling financial below the age of 55 who may be tempted to look towards their pension as a “get of out jail free” card.

 

The article gives a good brief overview of pension rules and ends recommending individuals looking to access their pensions to engage with Pension Wise and consider the use of a regulated adviser. The topics it covers are:

 

• Tax and your pension
• Tax reliefs and benefits of pensions
• Drawing your pension
• When you are allowed to take money from your pension fund early
• I have been contacted by someone who says I can take my pension fund before the age of 55 – is it a scam?
• Tax charges on unauthorised payments from your pension
• How to pay the tax charges
• Case study of pension liberation scam
• How to check if it is a scam
• Action to take if you are a victim of a scam
• Getting your money back
• More information

 

FCA: Insurance multi-firm review of outcomes monitoring under the Consumer Duty

(AF8, FA2, JO5, RO4)

 

The Financial Conduct Authority (FCA) has published the results of its multi-firm review into Consumer Duty outcomes monitoring. Although the review focused on 20 large insurance firms, its observations are relevant to all retail financial services firms, which should consider the findings.

 

Key Takeaways for Firms

 

The following are some of the key points to consider:

 

• Outcome Focus vs. Process Focus: Firms tend to focus too much on completing processes rather than delivering outcomes. For example, they report on overdue value assessments or product reviews without providing insight into key findings, lessons learned, or actions to be taken.
• Outcome-Based MI: Management information (MI) needs to be outcomes-based and comprehensive enough to provide the board/committee with a clear view of whether the Consumer Duty requirements are being met.
• Granular MI: Some MI lacks detail and should be accompanied by enough information to allow adequate board/committee scrutiny.
• Clear Reporting: Board/committee reports should include clear presentation and explanation of data, including explanations of what the data/metrics show and recommendations for action, especially where poor outcomes are identified.
• Proactive Action: Firms need to demonstrate how monitoring outcomes directly leads to proactive actions to improve these outcomes where necessary.
• Data Collection: Sufficient data must be collected to effectively monitor customer outcomes, using examples from FG 22/5 as a guide.
• Customer Group Monitoring: Monitoring outcomes for distinct customer groups should be consistent and identify if these groups experience worse outcomes than others. Further analysis or action is needed if different outcomes are identified.
• Action on Poor Outcomes: Firms need to show that actions are taken in response to any poor outcomes identified through monitoring, demonstrating how improvements to customer outcomes are being delivered.
• Product and Service Reviews: There is too much emphasis on the number and timeliness of product reviews rather than their findings. Insights into customer outcomes or actions taken as a result of reviews are often lacking.
• Price and Value Reporting: Reporting often focuses on the number and timeliness of value assessments, missing key aspects that determine customer value such as commissions, charges, operational costs, or overall product benefits.
• Customer Understanding: While firms review existing communications to ensure they meet Duty requirements, it is unclear if they monitor whether these communications support good customer outcomes. Only a few firms clearly monitor if customers have the right information to make effective, timely, and informed decisions.
• Customer Support: All firms have customer service targets or SLAs, but for some, it’s unclear how these targets were determined or if they meet reasonable customer expectations for key journeys. Firms need sufficient information to monitor and prioritize actions.

 

Next Steps

 

All firms subject to the Duty should review their monitoring processes against the findings and act quickly to address any compliance gaps, implementing robust plans to address shortcomings. The FCA’s report should support the development of the first Consumer Duty annual report, due by 31 July 2024.