HMRC's welcome and controversial powers

On 6 June 2014, HMRC published its third consultation on the simplification of inheritance tax (IHT) charges on relevant property trusts (RPT).

Inheritance tax charges on trusts

HMRC now proposes to give each individual a settlement IHT nil rate band (SNRB); (the IHT free amount, currently £325,000); in addition to their personal nil rate band (NRB); the individual will be required to allocate the SNRB between their RPTs.

The new legislation will apply to IHT charges from 6 April 2015. However, there is no time for planning beforehand, for example, by setting up trusts now to ensure they each have their own NRB, as the new legislation will apply to new settlements made after 6 June 2014, or where changes are made to existing trusts following this date that brings the trust into the RPT regime.

The intended simplification of the IHT calculations on RPTs is to be welcomed as they are complicated and often pose an administrative burden for trustees and practitioners. However, allowing the SNRB to be available only once, rather than renewed every seven years in the same way as the personal NRB, can mean more IHT will be due on trusts if a settlor has set up multiple trusts.

Pilot trusts (multiple trusts set up with a nominal sum intended to receive more assets at a future date, commonly used for pensions, death benefits and life insurance) will be particularly affected by the SNRB. Practitioners should consider whether action should be taken in respect of these. However, without knowing the specific rules
until the Finance Bill 2015 is brought in next
year, knowing the right advice to give will be a difficult task.

Attack on tax avoidance schemes

In July 2014, HMRC published an extensive list of tax planning schemes, identified by their scheme numbers, which it considers to be void.

Under HMRC’s new controversial powers brought in by the Finance Act 2014, that came into force in July 2014, users of the schemes who have been notified to HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS), will receive an accelerated payment notice requiring them to pay the disputed tax within 90 days unless they make representations that the notice should not have been issued to them.

If HMRC does not accept such representations, the tax will need to be paid within a further 30 days. The scheme user’s only option thereafter is to claim the disputed tax back via the courts, should it not be due to HMRC.

This step forms part of HMRC’s ongoing campaign against tax evasion and tax avoidance, the distinction between which appears to be becoming increasingly blurred as a result of the government’s policies to tackle tax avoidance and the media’s naming of well-known individuals involved in tax avoidance schemes.

This latest move by HMRC will no doubt be a strong deterrent. Individuals should be wary about entering into highly artificial tax avoidance arrangements as a result. However, traditional estate planning options, to be contrasted with highly contrived schemes that have little commercial reality, should still be considered as individuals are entitled to organise their affairs in such a way where they pay less tax. Sound professional advice is key before entering into any planning intended to avoid tax.

Wills: civil partnerships and same sex-marriage

In July 2014, the government laid a draft statutory instrument before parliament providing that conversion of a civil partnership to a same-sex marriage will not revoke, or affect any disposition in, a will made by a party to the civil partnership before the conversion.

This is in light of the fact that, under the
Wills Act 1837:

• a will is revoked upon marriage or a civil partnership unless it is made in expectation of the marriage/civil partnership and the testator did not intend it to be revoked; and
• divorce or ending a civil partnership causes a will made before that event to take effect as if the spouse or civil partner had died before the testator, unless he expresses a contrary intention in the will.

The Marriage (Same Sex Couples) Act 2013 (MSSCA 2013), that came into force on 13 March 2014, allowing a civil partnership/marriage conversion once the government has made regulations establishing a procedure for
this, made no mention of these Wills Act
provisions, leaving practitioners uncertain of the
implications of the civil partnership/marriage conversion on wills.

Practitioners can now confidently advise clients that the conversion, permitted from 14 December 2014 onwards, will not affect their wills unless they provide for it to do so.

Digital lasting powers of attorney (LPAs)

The government’s plans to bring in a fully electronic process for the creation and registration of LPAs has now been put on hold due to concerns raised by professional bodies regarding security and forgery risks.

Steps towards digital LPAs had already been made in July 2013 when a partial online system for making LPAs was introduced. Under this system the LPAs still have to be printed out and signed before being sent by post to the Office of the Public Guardian (OPG) for registration.

The next step of a fully digital system for making and registering LPAs was to be similar to the online self-assessment income tax return system and would involve either the recognition of digital signatures or no longer treatment
of LPAs as deeds in order to avoid the signature and witnessing requirements.

There is to be further consultation, to determine if safeguards for vulnerable donors can be factored into the proposed digitalised system, before this is progressed again. In the meantime, the partial online system allows users to ensure the LPAs have been completed correctly before they are printed. The government also announced in August 2014 that it will be introducing simplified forms early next year which will allow donors to confirm when they want their LPAs to come into effect.

Removal of attorneys

A further raft of cases resulting in the removal
of delinquent attorneys appointed under enduring or lasting powers of attorney (EPAs/LPAs) came before the Court of Protection
during the summer.

These include Re AB [2014] EWCOP 12, where the attorneys dissipated the donor’s assets by making substantial gifts and loans to family members and failed to pay the donor’s nursing home fees.

Then there was Re VH [2014] EWCOP 15, where the attorney arranged a mortgage in the donor’s name on her home and spent the proceeds on renovating a property with no connection to her. In both cases the attorneys had contravened their limited authority to make gifts and failed to act in the donor’s best interests.

In the case of Public Guardian v AW and DH [2014] EWCOP 28 an attorney spent a disproportionate amount of the donor’s monies on renovating her home, over and above what the donor had originally agreed to, so that the donor could live with her. The court removed the attorney on the basis that she had breached her duties by taking advantage of her position, receiving a personal benefit beyond that permitted and putting herself in a position
where their personal interests conflicted with their duties.

These cases highlight the importance of donors thinking carefully about the attorneys they choose to appoint under LPAs and their suitability for the role. They also flag the lack of understanding among attorneys in respect of their role and the need for practitioners to ensure attorneys are fully advised of their duties. SJ

Victoria Mahon de Palacios is a senior associate at Wedlake Bell