BKL tax partner Geraint Jones attended the STEP Spring Conference 2016. He reported on the highlights – which featured points on appointing an executor, succession law and non domiciles – for Taxation magazine.
STEP Spring Conference
Date: May 2016
Professor Lesley King: LK Law Ltd
Stephen Lawson: Forshaws Davies Ridgway
Lucy Obrey: Higgs & Sons
Chris Whitehouse: 5 Stone Buildings
Appointing an executor
Lucy Obrey warned about financial abuse in a deceased’s estate, highlighting powers of attorney, lifetime gifting, undue influence over wills and misselling as particular areas of concern.
She also stressed the importance of having more than one executor, not appointing older executors or those in ill health and the need to review the position regularly.
On wills, she said a new one is needed when people marry because a marriage invalidates a will.
Steven Lawson warned of the dangers of executors distributing from an estate before the time limit for an application under the Inheritance (Provision for Family and Dependents) Act 1975. That deadline is six months from the grant unless permission from the court is obtained.
Professor Lesley King focused on EU succession law, pointing out that different EU states have different domestic law on how to tax estates. Some use habitual residence as the basis for taxation, others use nationality. The UK uses domicile. Although the UK has opted out of the EU succession regulation, it does affect private client practitioners in the UK.
The regulation states where the deceased was habitually resident decides the law of succession that applies unless he was ‘manifestly more closely connected with another state’. However, an individual may choose the law of their nationality as determining succession under art 22. This is useful because it can avoid ambiguities and forced heirship especially since it applies equally to countries that have not signed up to the EU succession regulation.
Lesley noted that, from 6 April 2017, an additional nil rate band will be available when a residence or an interest in a residence is ‘closely inherited’. ‘Closely’ means that it passes to a lineal descendant or spouse or civil partner as long as they have not remarried. She warned that if a residence is left to a trust the ‘residence’ nil rate band will be available only if it is held for the lineal descendant on an immediate post death interest, a disabled person’s trust or a bereaved minor or bereaved young person’s trust.
Non domiciles, SDLT, trusts
Chris Whitehouse pointed out that, from 6 April 2017, individuals resident in the UK for more than 15 years of the previous 20 will be treated as UK tax resident for all purposes. There are no grandfathering rules. A non domiciled individual who will be treated as UK domiciled from 6 April 2017 therefore needs to leave the UK for five complete tax years to reset the clock and become non domiciled again.
He also said that, from 6 April 2017, all UK residential properties, irrespective of whether they are rented out, will become UK situs for inheritance tax. Therefore, the structure of using an offshore company to hold a UK residential property will no longer work.
Chris also discussed the changes in stamp duty land tax that were introduced on 1 April 2016. An increased rate of ‘plus 3%’ applies on the purchase of a ‘major’ interest in a dwelling that results in the individual owning two or more residential properties. When one main residence is replaced by another, the SDLT will be refunded if the original property is sold within 36 months. This is likely to create ambiguities on what is and is not a main residence.
In addition, Chris highlighted the changes in dividend taxation from 6 April 2016 and how these affect trust taxation. For interest in possession trusts, since there will no longer be a dividend tax credit to vouch the basic rate tax due, tax returns will need to be filed except when the dividends are mandated directly to the beneficiary.
Discretionary and accumulation trusts are now taxable at 38.1% which will be credited to the tax pool to frank any distributions. However, trustees must deduct tax at 45% on distributions and so may have to pay an additional 6.9%. Also beneficiaries do not benefit from the £5,000 dividend allowance. It would therefore be worth considering appointing an interest in possession to the beneficiary to avoid the additional tax and potentially allow the use of the £5,000 allowance.