Taxation and trusts; Online service for LPA process extended and more.

Contents:

• Online service for LPA process extended
• Secret trusts - it's all about the intention
• Helping taxpayers get offshore tax right

 

 

Online service for LPA process extended

(AF1, JO2, RO3)

In July 2020, the Office of the Public Guardian (OPG) launched a new digital Lasting Powers of Attorney (LPA) tool called the “Use an LPA service" to help those acting as an attorney to contact organisations, such as banks, insurance companies and healthcare providers, more easily, without having to produce paper copies each time. It is important to stress that this is only a tool for attorneys of certain registered LPAs. There is no proposal at present to digitalise the actual process of setting up an LPA.

The service was rolled out first for LPAs registered from 17 July 2020, but from 4 March 2021 it was extended to LPAs registered on or after 1 September 2019. 

When a new LPA is registered, attorneys and donors will be sent an activation key to allow them to create an account online and add the LPA to the account. They can then create an access code that they can give to any other relevant organisation, so that it can view an online summary of the LPA and authenticate its holder.

For existing registered LPAs, in order to get an activation key, the donor or the attorney will need to set up an online account at Use an LPA. Once the relevant information is input, the activation key will be sent to the given address (note this must be a valid UK address). The donor/attorney will then need to go back online and add the LPA to the account. They will then be able to give a secure access code to an organisation, who can then view the LPA details online at “View an LPA”. However, if there are instructions and preferences on the LPA, organisations may still request the original document as the service does not include these specific details.  

According to the OPG, since the service went live, they have provided activation keys for over 1 million LPAs, attorneys on 85,000 LPAs have registered to use the service, 27,000 access codes have been provided to organisations, and over 17,900 LPAs have been viewed online by hundreds of different organisations. With the recent extension of the service, its benefits will be available to many more clients. Many donors/attorneys may not be aware of this new tool and that for the existing LPAs (registered since 1 September 2019) they need to set this up online in order to use it, so there is another opportunity for advisers to keep their clients up to date.

The OPG says it is looking into making the service available for LPAs registered before September 2019, but it needs to do more work and analysis before making further decisions.

 

 

Secret trusts - it's all about the intention

(AF1, JO2, RO3)

The question of the existence of a secret trust was considered in the recent case of Titcombe v Ison, unreported, ChD, 28 January 2021. The Court decided that no trust was created although the claimant was due to receive some of the property.

The concept of a secret, or half-secret, trust usually, perhaps unsurprisingly, appears whenever there is an argument as to its existence which ends up in the Court.

Needless to say, a secret trust in this context is not one that is intended to be kept secret from HMRC but a trust which is not actually mentioned in so many words, but the person holding as the intended trustee knows all about it. Such trusts are usually created in a will.

A secret trust will be created where, although property is given apparently outright (i.e. without a trust being mentioned at all in the will) by the testator to a person (the legatee), that legatee agrees that he or she will carry into effect an understanding with the testator that the property is to be applied for the benefit of some other person.

Needless to say, the burden of proving a secret trust is on those who seek to establish it and the standard of proof is that of the balance of probabilities. Another important point is that it must be clear that the testator must have intended to create a trust as distinct from a moral or family obligation. An authority for this is the case of McCormick v Grogan (1869) which has been confirmed in numerous cases since then.

On the other hand, in a half-secret trust the terms of the will make it clear that the legatee is to hold property on trust, but the terms of the trust are not disclosed.

The most recent case on the question of existence of a secret or half-secret trust was the case of Executors of Lucien Freud v Paul McAdam Freud [2014] EWHC 2577 (Ch), where the son of the testator who had challenged the will lost the case.

It is generally known that trusts can be created with few if any formalities as long as the so called “three certainties” are satisfied: the intention to create a trust, the beneficiary and the property must all be certain. For a secret trust to be created there are additional requirements: the trust must be communicated to the intended trustee and must be accepted by the trustee. Although the will of a testator creating a secret trust will be silent on this, there may well be – and hopefully will be - some other evidence of the last two, say in a private letter. In the absence of any such evidence the Court will have to decide based on whatever other evidence a claimant may submit.

The facts

In the present case, a Ms Richards died, leaving no surviving spouse nor children, and left all her estate to her friend, a Mr Ison. The claimant in the case was Mrs Titcombe, her niece, who claimed that her aunt’s valuable collection of jewellery was in fact held by Mr Ison on a secret bare trust for her.

Mr Ison admitted that Ms Richards had expressed to him her wishes that some of the jewellery was to be given to Mrs Titcombe and he intended to comply with those wishes but denied that there was a trust. The question for the Court was therefore to determine whether Ms Richards intended to create a trust or ‘a mere moral or family obligation.’ The Judge said that “In reaching that decision, it is necessary to ascertain what sanction the testator intended for compliance with his wishes. If the intended sanction was the authority of the court, a trust is created. If the matter was left simply to the conscience of the donee, then there is no trust but a moral obligation.”

Decision

The Judge decided that, while Ms Richards had expressed informal wishes regarding her jewellery, the way those wishes had been expressed and also the fact that (as the Court found) Mrs Titcombe was not the sole beneficiary of the jewellery, the answer to the question ‘had Ms Richards intended her wishes to be sanctioned by the authority of the Court?’ was: no. Accordingly, no trust was created.

The case illustrates problems that may arise when someone dies and their will, even if there is a valid will, results in a dispute. So much better to write down all your intentions and wishes in a properly executed will than relying on others to carry out your wishes, relying on their “moral obligation”. And if you have to consider a secret trust, surely a half-secret trust in a will with a separate letter to the trustee would at least put beyond doubt your intention and hopefully avoid litigation.

 

 

Helping taxpayers get offshore tax right

(AF1, RO3)

HMRC is seeking views on how it can help taxpayers get their offshore tax right by using data, raising taxpayer awareness and reducing errors. 

UK residents must usually pay UK tax on their worldwide income and gains. HMRC’s discussion paper focuses on offshore tax non-compliance that is “not deliberate”. It looks at how HMRC could:

• use data in different ways to help taxpayers get their tax right;
• better support taxpayers with their offshore tax obligations;
• work with agents and intermediaries to help promote offshore tax compliance amongst taxpayers. This could be by personalising tax returns, or by sharing data and contacting taxpayers, and their advisers, earlier to prevent non-compliance before it happens.

According to HMRC, errors, including those involving offshore tax, account for 10% of the overall UK tax gap and result from mistakes made in preparing tax calculations, completing returns or in supplying other relevant information, despite the taxpayer taking reasonable care. Failure to take reasonable care accounts for 18% of the overall UK tax gap and results from a taxpayer's carelessness or negligence in adequately recording their transactions or in preparing their tax returns. These behaviours combined account for 28% of the overall UK tax gap. 

HMRC’s suggestions include:

Using data to promote offshore tax compliance - Taxpayers could include in their returns a breakdown of the overseas income declared detailing which bank account, etc., the income came from. This would, say HMRC, make understanding the data it receives much easier and help it to identify which taxpayers “may need help”. In particular, HMRC says, it would help prevent them from writing unnecessarily to taxpayers asking them whether particular items of income had been included in returns. To make this change, taxpayers would not have to obtain any new information as they already know the income they have received, the change would be that they would include this further information on their return.

Making it easier for taxpayers - Digital prompts for taxpayers. Such a prompt could be via a letter through the post, via a message appearing on screen while completing a self-assessment return, or any other method. HMRC has trialled prompts in other areas. HMRC is currently trialling a digital prompt within the foreign pages of the income tax self assessment return which gives a message to all taxpayers reminding them that, through exchange of information agreements, HMRC now receive more data than ever before on the offshore assets held by UK taxpayers. From December 2020 a new pilot will begin that uses the offshore data received under the CRS and FATCA. Under this pilot, targeted prompts will be provided to taxpayers as they complete their returns, reminding them that they hold assets outside the UK which may have given rise to taxable income.

HMRC suggests it could ensure that taxpayers who feature in CRS data are automatically pre-selected to complete the foreign pages section of the return. A prompt would also appear explaining to the taxpayers that this preselection has been done based on information that HMRC has received from foreign tax jurisdictions.

Another use of targeted digital prompts could be to remind taxpayers to declare income and gains from their offshore assets as they complete the foreign pages of the tax return. For example, a taxpayer may receive a message such as ‘please don’t forget to declare any income and gains from the assets you hold in country X’. 

A further potential development could involve sending taxpayers targeted prompts earlier in the tax return process, before they start to complete the self-assessment return, through sources such as the personal tax account. This might remind taxpayers to register for self-assessment and to gather the right information about their offshore assets in good time.

Working with intermediaries to ensure offshore tax compliance - HMRC suggests that it could share the data it receives on offshore assets to “help agents understand the tax affairs of their clients and predict client needs”. While confidentiality safeguards would need to be established, HMRC would like to explore the viability of providing information to trusted agents in advance of tax returns being sent to it. This could be carried out through digital prompts, as suggested above for taxpayers, or through a more direct sharing of information with agents. This information would then be available for agents to use to help their clients complete correct returns and get their offshore tax right first time (as described above).

Other possible approaches include:

• A dedicated Community Forum for offshore issues.
• Improving the Worldwide Disclosure Facility (WDF) to allow agents to provide more specific information when disclosing taxpayers’ past tax liabilities.
• Providing information to agents on their clients in advance of tax returns being sent to HMRC.

Working with financial intermediaries – HMRC is keen to explore the possibilities of the financial sector providing further support for their customers. This could be by encouraging best practice, or by providing guidance and education. HMRC would also be interested in exploring how technical advances with information technology (for example) in the financial sector could help support customers in getting their tax affairs right first time.

This consultation closes at 11:45pm on 15 June 2021. All responses should be sent by email to: consult.nosafehavens@hmrc.gov.uk. Subject to comments received, HMRC may carry out formal consultation on measures that are identified.