Taxation and trusts; Long-Term Care: is a new tax on its way?

Contents:

• 30 day reporting and payment of CGT on residential property gains
• How can HMRC encourage more co-operative relationships with the wealthy and their agents?
• FCA measures to raise standards in the funeral plans market
• Long-Term Care: is a new tax on its way?

 

 

30 day reporting and payment of CGT on residential property gains (AF1, RO3)

HMRC has introduced an interim process to deal with any overpayment of CGT in relation to residential property gains.

Following changes to the way in which capital gains tax (CGT) is payable on residential property sales (which are not covered by the private residence exemption) there has been questions about how HMRC would deal with any overpayment of CGT that is available to set-off against any income tax liability.

The main issue is that someone who sells, for example, a second property (e.g. a buy-to-let) has 30 days to report and pay any CGT that is due. This applies for sales since 6 April 2020, so for the 2020/21 tax year, for which, before the changes, any CGT would have been payable by 31 January 2022 for those submitting online. However, under the new rules, an individual can report and pay the tax using a CGT UK property disposal account.

In practice, the rates of CGT payable will be at 18% for capital gains falling with the basic rate threshold and 28% for capital gains which fall in higher rate tax.

Given that the individual only has 30 days from the date of the sale to report and pay the tax, in many cases there is likely to be an overpayment, or indeed an underpayment, if the individual stops working for example.

As a result, the Chartered Institute of Taxation, together with other professional bodies, met with HMRC to try to resolve this issue.

Broadly, HMRC has said that if an individual needs to amend their UK property disposal return, they can do so via the UK property disposal return or via self- assessment.

If an amendment via the UK property disposal return results in a repayment, this will be processed by HMRC.

If the individual chooses to amend via self-assessment, they should complete the return with full details of all of their capital gains and losses including the tax charged via the UK property disposals return – it is then possible for them to review their full tax calculation and they can then pay any amount due or contact HMRC for a repayment. The individual must also then contact HMRC (0300 200 3300) to make a manual adjustment, and if any further info is required HMRC will notify them.

It is expected that HMRC will communicate this interim process via the agent forum and via gov.uk. HMRC recognises that this process requires an additional step, in the need to contact HMRC following submission of the return, and will explore ways to provide a better solution going-forward.

For many individuals, the best option may be to use the self-assessment route to arrive at the correct CGT calculation, despite the extra step required.

 

How can HMRC encourage more co-operative relationships with the wealthy and their agents? (AF1, AF2, JO3, RO3)

HMRC recently commissioned research to explore relationships with the wealthy and their agents to promote trust and transparency.

HMRC has been developing a long-term strategy for wealthy customers to address challenges faced by this group – mainly due to the significant risks which arise from the complexity of their affairs.

In light of this, HMRC recently commissioned research to explore relationships with the wealthy and their agents in order to foster greater trust and transparency, reduce the tax gap and increase voluntary compliance. The research was carried out by IFF research between February and March 2020, and consisted of 37 interviews.

For the purposes of the report, HMRC defined wealthy individuals as those with an income over £200,000 per annum and/or assets of over £2 million.

The report shows a concern that there is a perception within HMRC that “some wealthy individuals’ tax affairs were based on a culture of secrecy and a lack of transparency” - a view that participants pointed out is not an accurate reflection of all wealthy individuals. Equally, responses suggested that “many wealthy individuals…automatically perceive HMRC to be ‘enforcers’ looking to get ‘every last penny of tax’.”

Some participants felt these social norms and perceptions could be altered by HMRC to improve understanding of wealthy individuals and their agents by building more co-operative relationships with them. Participants also felt that HMRC should focus on improving the relationship with those who want to be more transparent by being more prepared to communicate in a collaborative tone that acknowledges what they do contribute in taxes, and their previous history of compliance, to make them feel more valued as taxpayers.

Findings from the research will be used to help develop HMRC’s long-term strategy for the wealthy customer group.

 

 

FCA measures to raise standards in the funeral plans market (AF1, RO3)

The FCA has confirmed the rules funeral plan providers will have to follow when they come under regulation from 29 July 2022.

The new Financial Conduct Authority (FCA) rules are intended to mean:

• funeral instalment plan products will always deliver a funeral (after a moratorium period) as the FCA will be banning those that don’t guarantee this;
• cold calling will be banned and new standards on advertising will be implemented to ensure plans are sold fairly; 
• commission payments to intermediaries will be banned to ensure products represent fair value;
• those selling funeral plans are subject to full checks on their fitness to operate to improve governance standards and oversight.

However, the FCA warns that funeral plan providers will not come under regulation until 29 July 2022. This will mean customers will not be able to make a complaint to the Financial Ombudsman Service, nor will they have protection from the Financial Services Compensation Scheme (FSCS) should their provider fail before 29 July 2022. Customers should be alert to any cold calls they receive about funeral plans before the ban comes into effect.

The FCA says that firms that want to continue conducting funeral plan activities after regulation should prepare now so that they can apply for authorisation as soon as possible after the application gateway opens in September 2021. For applications made after November 2021, the application fee will increase by 40%.

Any firms that are not authorised or do not become Appointed Representatives by 29 July 2022 will have to cease trading in relation to funeral plans before FCA regulation takes effect. From 29 July it will be a criminal offence for plan providers to carry out funeral plan contracts without authorisation. 

If a provider knows it will not apply for authorisation, withdraws its application, or has its application refused, it should stop selling new funeral plans from that point in time. Providers in this position must, before 29 July 2022, transfer their existing books of business or wind down in an orderly way. The FCA has added that it is unacceptable and may be unlawful for plan providers to sell new plans which they will not be able to deliver once regulation starts as they will not be authorised to do so.

Further consultation on firm failure rules

Following feedback received from its March consultation and the launch of a Treasury consultation on proposed legislation in relation to funeral plans and the Financial Services Compensation Scheme (FSCS), the FCA is now consulting on the outcomes for consumers in the event of firm failure. 

The proposed rules aim to minimise harm to customers if a regulated funeral plan provider fails by ensuring that contracts can be transferred to new providers where possible, and that the FSCS can arrange continuity of funeral plan contracts or pay appropriate compensation if a firm is not able to meet its liabilities. 

The proposals also aim to mitigate any undue impact on FSCS levy payers by providing the FSCS with additional powers to help it to recover its costs from failed firms.

You can read the FCA’s consultation here and the Treasury’s consultation here. The FCA is asking for feedback on the draft rules by 31 August 2021. And the Treasury consultation closes at 11:45pm on 3 September 2021.

 

 

Long-Term Care: is a new tax on its way? (CF8)

The 2019 Conservative Party Manifesto committed to urgently seek a cross-party consensus in order to bring forward the necessary proposal and legislation for long-term reform.

On Friday, the Times newspaper reported (citing a source) that Boris Johnson is backing proposals for a new tax to pay for reforms to Britain's social care system under plans that could be agreed within weeks.

Downing Street was "comfortable with some sort of tax" to fund universal social care, the newspaper said.

The prime minister, Health Secretary Sajid Javid and Finance Minister Rishi Sunak are understood to be pushing to agree the terms of a package by as early as Thursday, the Telegraph reported separately. The announcement is expected to include a cap on the amount people pay towards their own care.

Of course, a cap is already set out in legislation which was due to come into force back in April 2016.

The Care Act 2014 included measures for the reform of social care based on the recommendations made in 2011 by the Dilnot Commission. The measures, which were aimed at reducing the impact of care costs on accumulated wealth, include a cap on the total amount that a person will have to pay towards their own care as well as a substantially increased higher capital limit.

Part 1 of the Act, which is now in force, introduced the first of the reforms – a universal deferred payment arrangement and new national criteria to determine eligibility for care - in April 2015.

A £72,000 cap on care costs and increased higher capital limit of £118,000 were due to be introduced under Part 2 of the Act which was originally due to come into force in April 2016, but which was further delayed until publication of the social care Green Paper, which was expected December 2018 having been delayed from Summer 2017!

It will be interesting to see what comes of this latest report, and, as always, we will keep you informed of any changes.