Although, the elimination of the $10,000 cap on individual taxpayers’ ability to deduct state and local taxes was not mentioned in the proposal; there is talk of this being added to the final version of tax changes before implementation.
If you have any questions, please feel free to contact our team.
On September 13, 2021, proposed tax changes were released as part of the reconciliation bill by the House Ways and Means Committee – this reconciliation bill is familiarly known as ‘Build America Back Better’.
The proposed tax changes apply for both individuals and business which include: –
A recent judicial review case (Murphy v HMRC [2021] EWHC 1914 Admin, 13 July 2021) confirmed HMRC’s view that UK resident beneficiaries who receive discretionary income payments from offshore trusts can only claim relief for income tax paid by the trustees on income that arose in the 6 years before the end of the tax year in which the payment to the beneficiary was made.
The decision turned on the interpretation of an extra statutory concession (ESC18) which concerns the income tax credit available on discretionary payments out of both UK and non-UK resident trusts. The taxpayer had argued that the concession did not impose a time limit on UK residents but the decision confirms that payments to a UK resident from a non-UK trust are subject to the same 6 year time limit for claiming credit for income tax already paid, as applies to non-UK resident beneficiaries of a UK trust. The decision also shines a spotlight on the authority of HMRC concessions, emphasising that they can only be relied upon if they are absolutely clear in scope.
The UK’s implementation of the EU Fifth Anti-Money Laundering Directive requires the majority of Trusts to be registered with HMRC by September 2022. The Trust Registration Service (TRS) became available on 1 September 2021, for non-taxable trusts to register with HMRC, as opposed to previously when just taxable Trusts had to be registered. This includes existing Trusts (many of which may have run for decades with little or no “professional” interference) and any future Trusts, which must now be registered within 90 days.
The new requirement catches many more types of Trusts; declaration of trusts where parents hold property for their children, and common “protection” trusts in Wills whereby a spouse has a life interest in a property, or a nil rate band trust is set up. It will be the duty of the Trustees to register these Trusts, however, everyone should be encouraged to question their own circumstances and whether there is anything that may be caught by these requirements.
HMRC have clarified the deadline for trustees to register non-taxable trusts, including all UK express trusts and some non-UK trusts holding UK property, due to delays with the service. Please contact us if you require further assistance.
The new deadlines are:
Certain specific trusts are excluded from registering as are bare trusts and deeds of trust between spouses in connection with Joint property ownership, as these are not classed as express trusts for these purposes.
Family investment companies (FIC) have been increasingly used to hold family assets and to pass wealth to the next generations. Well-structured FIC’s allow adult children to become involved with the management of assets without taking the complete control of the FIC’s. This can have both short-term tax advantages as well as long term potential inheritance tax advantages.
In 2019 HMRC set up a unit to investigate potential loss of inheritance tax. This unit looked at FICs and carried out a quantitative and qualitative review into any tax risks associated with such entities, with a focus on inheritance tax implications.
The investigative unit has been closed down after failing to find any correlation between the use of FIC’s and non-compliant behaviour. They, however, have not confirmed that they have no intention of introducing anti-avoidance legislations in the future. FIC’s, therefore, remain an active option however the prospects of future changes cannot be ruled out.
According to the Taxpayer Advocate Service, the Internal Revenue Service still had more than 35 million tax returns to process at the end of the 2020 filing season. About 23 million of those returns were filed by individuals who may be waiting on refunds or stimulus checks, according to the report that was released recently. The difficulties of working during the pandemic, combined with last-minute tax changes made by Congress aimed at providing relief for struggling Americans, created a challenging tax filing season for the IRS.
About 5 million returns are under review because there were discrepancies in how much the filers were claiming for their stimulus payments. Taxpayers who did not receive their stimulus checks, or are owed more than they originally received because they lost their jobs during the pandemic, are allowed to claim the difference on their tax returns. But when the amount they claim doesn’t match IRS records, the agency has to conduct manual reviews. In response to the report, the IRS has said it has made improvements to streamline hiring and continues to improve telephone services for taxpayers.
The recent introduction of Senator Bernie Sanders’s proposed tax reform bill, the “For the 99.5% Act,” has proven to bring the possibility of unprecedented changes to tax and estate planning.
Examples of these changes include:
Due to the uncertainty of outcome of this proposed legislation, taxpayers may be pre-empted to make changes to their estate planning.
Federal estate and gift tax exemption
At present, federal estate and gift tax exemption is set at $11.7 million per individual and $23.4 million per married couple.
If implemented, the “For the 99.5% Act” proposes the following changes:
If the “For the 99.5% Act,” is enacted it would not apply to trusts and transfers created prior to enactment. It may therefore be wise for high-net-worth individuals to consider proactive next steps to address these potential limitations before they become law.
President Joe Biden’s administration unveiled its proposed budget for fiscal year 2022 recently. Treasury says the $6 trillion proposed budget focuses on infrastructure, clean energy, and research and development, and among its many provisions are a host of proposed tax changes affecting individuals and corporations.
One set of tax and revenue proposals, named the American Families Plan, would increase taxes on high-income individuals, make permanent various recent tax credit expansions, further limit like-kind exchanges, and address various tax administration issues, including regulation of paid tax return preparers.
Other proposals are grouped under the name American Jobs Plan, and they include a variety of corporate tax changes, including raising the corporate tax rate and imposing a minimum tax on corporations, tax incentives to support housing and infrastructure, and clean energy incentives.
American Families Plan
The proposed budget would make three changes to the taxation of high-income individuals:
American Jobs Plan
The proposed budget calls for the following corporate tax changes:
How much of this will be passed remains to be seen.
If employed workers were told to work at home by their employer because of coronavirus and, as a result, their household costs have increased, they are eligible to claim the working from home tax relief. It is quick and easy to claim via HMRC’s online portal. From 6 April 2020, the amount employers have been able to pay tax-free without employees having to provide evidence of an increased bill is up to £6 a week. Employees who have not received the working from home expenses payment direct from their employer can apply to receive the tax relief from HMRC.
Eligible taxpayers can claim tax relief based on the rate at which they pay tax. For example, if an employed worker pays the 20% basic rate of tax and claims tax relief on £6 a week, they would receive £1.20 a week in tax relief (20% of £6 a week) towards the cost of their household bills. Higher rate taxpayers would receive £2.40 a week (40% of £6 a week). Over the course of the year, this could mean taxpayers can reduce the tax they pay by £62.40 or £124.80 respectively.
To claim for tax relief for working from home, employees can apply directly via GOV.UK for free. Once their application has been approved, the online portal will adjust their tax code for the 2021 to 2022 tax year. They will receive the tax relief directly through their salary until March 2022. If employees were required to work from home last year but did not claim for the tax relief, they have not missed out; HMRC will accept backdated claims for up to 4 years. They will receive a lump sum payment for any successful backdated claims.
The OECD has said 131 countries and jurisdictions have put their name to an international agreement on an overhaul to tax rules for the digitalized economy and for large multinational businesses.
A handful of territories from the 139-member Inclusive Framework have not yet joined the Statement, the OECD acknowledged.
The OECD said its two-pillar plan seeks to ensure that large multinational enterprises (MNEs) pay tax where they operate and earn profits.
It said: “Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies. It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.” Meanwhile, “Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.”
The OECD has said that pillar one will newly entitle market jurisdictions to taxing rights on more than USD100bn of profits earned by digital multinationals. Meanwhile, it said the countries had agreed to establish a minimum rate of at least 15 percent on multinational companies. This minimum corporate tax burden will generate about USD150bn annually,
OECD Secretary-General Mathias Cormann said: “After years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share of tax everywhere. This package does not eliminate tax competition, as it should not, but it does set multilaterally agreed limitations on it. It also accommodates the various interests across the negotiating table, including those of small economies and developing jurisdictions. It is in everyone’s interest that we reach a final agreement among all Inclusive Framework Members as scheduled later this year.”
