There have been a few updates and changes recently made to trusts and property taxes.

We have noted below key dates and exemptions that you may apply to you:

Annual Tax Enveloped Dwellings (ATED)

A new valuation will be required for 2023/24 ATED returns, and all residential properties owned by a company, or “non-natural persons” must be revalued on April 01st, 2022.

These are just some of the issue’s that arise, there are other issues for employers which would need reviewing.

This value should then be applied to your 2023/24 ATED returns and the following four tax years.

It is advisable to prepare the valuation as early as possible to arrange for potential ATED payments or increased payments that will due. Also note that the valuation date for any properties acquired after April 01st, 2022 will be the acquisition date.

Please contact a member of our team for further information as a new valuation may not necessarily be required where a relief has applied; and is expected to continue to apply, throughout the entire ownership period.

Trust Registration

We recently circulated a reminder to our clients that all UK trusts and certain offshore (non-UK) needed to be registered with the UK Trust Registration Service by September 1st, 2022.

If you meet the requirements and are yet to register with the UK Trust Registration Service, please contact our team.

Register of Overseas Entities (ROE)

The new ‘Register of Overseas Entities’ (ROE) was created on August 1st, 2022 as a method to reduce money laundering through UK properties.

Overseas entities who own or lease land or property in the United Kingdom will need to register details of their beneficial owners and managing officers with Companies House by January 31st, 2023.

Should you require any further information or assistance on any of the above requirements, please contact our team for advice.

The Chancellor, Kwasi Kwarteng has announced that the 45% Income Tax top tax rate will remain in place from next April. He admitted that his un-costed mini-budget proposal had become a “a massive distraction”.

The financial markets and the value of the Pound have been in turmoil since the Chancellor made his fiscal statement just over a week ago. The prime reasons for this lack of stability were that in a time of rising inflation, tax cuts for higher rate taxpayers were seen as the wrong thing to do. In addition, the statement was made ahead of any of the anticipated annual reports from the independent Office of Budget Responsibility.

The Conservative party are having their annual conference in Blackpool this week. MPs will without doubt be putting a lot of pressure on Prime Minister Liz Truss and her new chancellor to provide vital reassurance about the viability of their plans for growing the UK economy. Further announcements may well be made when the OBR publishes its reports in early November.

Please see below an article on ‘The taxability of NFTs in the US’, this was published in  ‘The American’ magazine and written by Nomaan Ilyas

It can be found HERE

A ‘workation’, derived from the term “work” and “vacation”, refers to the post-covid phenomenon of remote working from any location. However, there are many tax-related implications which apply to this newfound working model. Some countries have embraced the opportunity, with Spain introducing a ‘digital nomads’ regime with a potential 15% tax rate.

Some of the key issues to consider are-:

• Income tax Liability in home country
• Income tax Liability in new country of residence
• Social security arrangements
• Double tax treaty
• Permanent establishment in new home country for employer and its implications

These are just some of the issue’s that arise, there are other issues for employers which would need reviewing.

Please contact our team for further information

In Jonathan Oppenheimer v HMRC [2022] TC08443, the First Tier Tribunal (FTT) ruled that a non-UK domiciled individual was ‘treaty resident’ in South Africa despite long term residence and business interests in UK. As a result £20m of funds transferred to the UK were not ‘remittances’ and as such not subject to UK tax.

Case Facts

– Oppenheimer (taxpayer) had received £20 million from a family trust; HMRC believed he was a treaty resident within the UK at the time he had received the payments – if so, tax on these payments would have accumulated to over £10 million, however, if he was deemed treaty resident in South Africa, there would be no additional tax due.

Verdict

– Oppenheimer who had personal and economic connections with both South Africa and the UK.

– Oppenheimer was found to be a treaty resident in South Africa due to the tiebreaker test in the UK/South Africa Double Tax Treaty.

The Appeal was made under Article 4(2) (the ‘tiebreaker’ test) of the double taxation relief, it was found that:-

1. South Africa was the state of his ‘centre of vital interests’, in which his personal and economic affairs were closer.
2. Despite the decision on centre of vital interests being sufficient to allow the taxpayer’s appeal, the FTT went on to consider that the appellant had a habitual abode in RSA.

The appeal was accepted on both grounds.

Please contact our team for further information

The IRS has issued guidance on the topic of “relevance”, and some of the impacts it has had in the area of pre-immigration planning. The guidance addresses issues pertaining to so-called “check the box” elections, where non-US entities can designate their classification – as a corporation, partnership, or disregarded entity – for the purposes of US federal tax.

In summary, the IRS has clarified that in the case of a foreign eligible entity whose classification was never relevant, the initial filing of a Form 8832 should be deemed as an initial classification election. Notwithstanding the form of the election as an initial classification election, the impact of the election will be to trigger the deemed consequences that attach to a change in classification, as was outlined in the initial guidance from the IRS that was released in 2021. Further, the IRS confirmed in their frequently asked questions that although such an initial election will impact the consequences of a change in classification, such an entity will not be barred under the 60-month limitation from making a subsequent change in classification.

Please contact our team for further information.

The US gift and estate tax regime remains unchanged at present. However, Inflation adjustments for certain exclusion and exemption amounts have automatically been applied (as of 1 January 2022):

• The ‘unified’ lifetime gift and estate tax exemption amount (applicable to US citizens and most green card holders) has increased from $11,700,000 to $12,060,000.
• The exemption amount for non-US domiciled individuals remains as is at only $60,000 for their US situs assets.
• The annual exclusion amount for gifts to non-spouses has increased from $15,000 to $16,000 per recipient.
• The annual gift exclusion amount for gifts to non-US spouses has increased from $159,000 to $164,000.

The maximum gift and estate tax rate remains at 40% of the fair market value of the relevant assets.

Please contact our team if you have any questions.

Whether you are receiving distributions from a US trust as a beneficiary or you or your family are considering estate planning in the US; UK resident individuals carefully need to consider the impact of such events. For UK/US individuals the tools that work in the US may not necessarily be tax-efficient in the UK. It is important therefore that any US estate plan that involves UK individuals is sensitive to UK tax rules.

Why Trusts Can Be Beneficial

In simple terms leaving assets in a US Trust by US person, may mean the assets are outside the scope of UK Inheritance tax (IHT)whereas making the gifts directly to a UK domiciled beneficiary will mean the assets come into the UK IHT tax net.

Due to the fact that, currently a US person has approximately $12m ($24m between husband and wife) of lifetime allowance for estate tax purposes, there is a significant mismatch between UK and US death taxes. The UK the nil rate IHT band is £325k per individual, although the UK effectively has an unlimited gift allowance.

Structured carefully, that trust may largely avoid double exposure to US and UK tax, from which multiple generations could benefit.

Potential Issues with Trusts

There are various forms of US trust, US trusts can often be more rigid, requiring monies only to be distributed at certain ages, or otherwise assets might flow through a ‘waterfall’ of trusts upon the occurrence of various life events.

For UK tax purposes, UK individuals inheriting via certain types of US trusts may be problematic. One such example is with US living trusts. If an individual inherits assets via a living trust, then the precise wording of that trust is critical to whether the individual pays significant UK tax on their inheritance.

It is possible for living trusts to be characterised as bare trusts for UK purposes, which can avoid some of these issues. However, if that treatment is not obtained, you may be exposed to a potential UK capital gains tax of charge of up to 32 percent on undistributed gains, for example.

Further Action

If you are the beneficiary of a US Trust or are about to receive an inheritance, I would advise that a review of the current structure and planning is carried out.

HMRC has released a long-anticipated update to the Crypto assets Manual on the tax treatment of “Decentralised Finance (DeFi)” – which has been an increasingly popular crypto investment space. The update seeks to clarify the UK tax treatment of certain DeFi arrangements for the first time – it should be noted that HMRC is among the first global tax authority to attempt this – and anyone invested in or borrowing with DeFi should take note.

HMRC have stated that any periodic returns from staking or lending in DeFi arrangements will not be treated as interest, despite the commercial similarity of these arrangements to a traditional loan in conventional currency.

The new HMRC guidance sets out a number of factors to consider – while acknowledging that DeFi is a constantly evolving area.

To avoid any unexpected or unwelcome tax consequences, investors and participants in the DeFi space should familiarise themselves with the latest update to the HMRC Crypto assets Manual – though some uncertainties remain.

Please contact our team for further information.

Regulations confirming the extension of the deadline for registering non-taxable trusts to 1 September 2022 have been put before Parliament.

HMRC’s expanded Trust Registration Service (TRS) opened to registrations by non-taxable trusts on September 2021. Under the new rules, all UK express trusts and some non-UK trusts are required to register with HMRC. This includes non-taxable trusts, unless the trust is specifically excluded.

The regulations amend the legislation to reflect the new timescales (as the original deadline was March 2022):

• The deadline for trustees to register non-taxable trusts is 1 September 2022.
• For trusts that fall within the scope of the TRS after 1 September 2022, the deadline is 90 days.
• Where the information held on the TRS changes, the trustees have 90 days from when they become aware of the change to update it.

Separately, HMRC has indicated that non-taxable trusts that were in existence on or after 6 October 2020, but which closed before 1 September 2021 (the date on which the expanded Trust Registration Service opened for registrations) will still need to register and then immediately close the trust record. HMRC has stated that it will take a proportionate approach if any such trust comes to its attention after the registration deadline on 1 September 2022.

HMRC has indicated that it will update its Trust Registration Service Manual with further guidance, which will be helpful to clarify some grey areas. In particular, at present it would seem that most UK nominee arrangements will need to be individually registered under the TRS, and it is to be hoped that HMRC will clarify the position.

Companies operating employee benefit trusts (EBTs), employee ownership trusts (EOTs) and other trust or nominee arrangements involving employees should consider any trust arrangements in existence on or after 6 October 2020, and (assuming that an exclusion does not apply) ensure that the trustees register them by 1 September 2022.

Please contact our team for further information.