Company Tax planning

TRUSTS CAN BE a very useful way to hold interests in land and property in the UK. One type of trust, called a bare trust, provides a simple and flexible way to manage and transfer property ownership and can be used in for basic tax planning. However, many people who have created such bare trusts are not aware of the HMRC registration requirements and the tax implications associated with them.

In today’s Shipleys Tax note we look at in particular what bare trusts are and the consequences of failure to register with HMRC.

What is a bare trust?

Bare trusts are often used for holding interests in land and property, as they provide a simple and flexible way to manage and transfer property ownership. A bare trust is created when a settlor transfers legal ownership of property or assets to a trustee, who holds the property or assets on behalf of the beneficiary. Unlike other types of trusts the trustee has no discretion over how the trust assets are distributed, and the beneficiary has an immediate and absolute right to the trust assets.

Bare trusts are often used for holding interests in land and property, as they provide a simple and flexible way to manage and transfer property ownership.

Trust Registration

The UK government’s Trust Registration Service (TRS) requires trustees to register details of certain trusts with the government within certain deadlines. The registration requirements apply to all trusts that have UK tax consequences, including trusts that hold interests in land or property.

Despite this, many people who have created bare trusts may not be aware of the registration requirements and the potential consequences of failing to comply. (Surveys by YouGov in 2019 found that over half of UK adults were unaware of the TRS and the registration requirements for trusts; and NFU Mutual 2018 which found that more than a third of people with trusts were unaware of the registration requirements).

Failing to comply with the registration requirements for a bare trust in land or property can have serious consequences. Trustees who fail to register the trust with the TRS can face fines and penalties. In addition, failure to register the trust can result in delays and difficulties in transferring or selling the property.

Bare trusts  exempt?

Some trusts, such as those that hold only cash or simple assets, bare trusts, and those already regulated, are exempt from registration.

Trustees who fail to register the trust with the TRS can face fines and penalties. In addition, failure to register the trust can result in delays and difficulties in transferring or selling the property.

However, the exemption does not cover trusts that hold interests in land or property. If you have a bare trust that holds interests in land or property, you will need to register the trust with the TRS if it meets certain criteria. The registration requirements apply if the trust has a UK tax liability, such as income tax, capital gains tax, or inheritance tax.

How do you register a bare trust?

The registration process involves providing detailed information about the trust, including the names and addresses of the settlor, trustee, and beneficiary, as well as information about the trust’s assets, income, and tax liabilities. The trustees must also keep accurate records of the trust’s transactions and be able to provide them to HM Revenue & Customs (HMRC) if requested.

What are consequences on non-registration?

Penalties for non-compliance with the registration requirements can be significant. Trustees who fail to register a registrable trust within the required timeframe can be subject to penalties of up to £5,000, as well as daily penalties of up to £10 per day for each day that the registration is overdue. In addition, failure to register a trust can result in criminal sanctions, including fines and imprisonment.

If you have a bare trust that holds interests in land or property, you will need to register the trust with the TRS if it meets certain criteria.

Another potential consequence of failing to register a bare trust in land or property is the possibility of a tax investigation by HM Revenue & Customs (HMRC). If the trust generates income or has assets that are subject to income tax, capital gains tax, or inheritance tax, the trustees may be liable for tax penalties and fines if they fail to comply with the tax requirements.

What are the tax implications?

In addition to the registration requirements, bare trusts that hold interests in land or property may be subject to additional taxes, such as stamp duty land tax (SDLT) and capital gains tax (CGT). The tax liabilities associated with bare trusts in land or property can be complex, and it is important to seek professional advice to ensure that the trust is set up and administered in a tax-efficient manner.

One potential advantage of using a bare trust for holding interests in land and property is that it can provide greater privacy and confidentiality than other types of trusts. However, it is important to note that the registration requirements and tax implications associated with bare trusts in land and property can be significant. Failure to comply with the registration requirements or pay the appropriate tax can result in penalties and fines.

In conclusion, failing to register a bare trust in land or property with the government’s Trust Registration Service can have serious consequences, including fines, penalties, and delays in transferring or selling the property. You may need to register the trust and comply with complex tax requirements. It is important to seek professional advice to ensure that the trust is set up and administered in a tax-efficient manner, and to avoid penalties and fines.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

“IN THIS WORLD nothing can be said to be certain,

except death and taxes.”

(Attributed to Benjamin Franklin.)

While we may not be able to avoid either of these inevitabilities, there are ways to lessen the burden of one of them: inheritance tax (IHT). Inheritance tax can be a significant concern for individuals and families, as it can erode the value of an estate and limit the assets that can be passed on to loved ones. Fortunately, there are some basic strategies that can be employed to reduce IHT, from making gifts during your lifetime to setting up trusts.

In today’s Shipleys Tax note, we will look at some effective ways of reducing IHT, thus ensuring that your loved ones inherit as much of your wealth as possible.

What is IHT?

Inheritance tax (IHT) is a tax on the value of an individual’s estate exceeding the IHT threshold (£325,000) when they pass away. In the UK, the current rate of IHT is 40%, which can significantly reduce the amount of assets that can be passed on to heirs.

5 tips to reduce IHT

However, there are several ways in which you can reduce the amount of IHT that will be payable on your estate. Here are some basic tips to help you minimise your IHT liability:

(IHT) is a tax on the value of an individual’s estate exceeding the IHT threshold (£325,000) when they pass away. In the UK, the current rate of IHT is 40%.

1. Use your annual exemption: Each individual is entitled to an annual exemption of £3,000 for IHT purposes. This means that you can give away up to £3,000 each year without incurring any IHT liability. This can be a useful way to gradually reduce the value of your estate over time.

Illustration: If Adam has an estate worth £500,000, he can give away £3,000 each year to his children without incurring any IHT liability. Over a period of 10 years, John will have reduced the value of his estate by £30,000.

2. Make gifts out of your surplus income: You can make gifts out of your surplus income without incurring any IHT liability. To qualify as surplus income, the gifts must be regular, made from your income (after tax) and must not affect your standard of living. This can be a useful way to pass on wealth to your loved ones during your lifetime.

Illustration: If Sara has an income of £60,000 per year and her living expenses amount to £40,000, she has a surplus income of £20,000. She can make gifts of up to £20,000 each year to her children without incurring any IHT liability.

You can make gifts out of your surplus income without incurring any IHT liability. To qualify as surplus income, the gifts must be regular, made from your income (after tax) and must not affect your standard of living.

3. Make use of the annual small gifts exemption: You can make gifts of up to £250 to any number of individuals each year without incurring any IHT liability. This can be a useful way to pass on small amounts of wealth to family and friends.

Illustration: If Tom has 10 grandchildren, he can make gifts of £250 to each of them each year, without incurring any IHT liability.

4. Set up a trust: You can set up a trust to hold assets for the benefit of your heirs. This can be a useful way to reduce the value of your estate for IHT purposes. There are different types of trusts available, and it’s important to seek professional advice to ensure that you choose the right one for your needs.

Illustration: If Imran has an estate worth £1 million, he can set up a trust and transfer £500,000 of assets into it. As long as he survives for 7 years after making the transfer, the value of the assets in the trust will not be subject to IHT.

5. Give gifts to charity: Gifts to charity are exempt from IHT. This can be a useful way to reduce the value of your estate and support a cause that you care about.

Illustration: If Maryam has an estate worth £1 million, she can leave a gift of £100,000 to her favourite charity in her will. This will reduce the value of her estate to £900,000 and the amount of IHT payable.

In general, reducing Inheritance Tax (IHT) can be a complex and sensitive issue, but it is an important consideration for individuals with significant assets. While the current IHT threshold may seem generous, many estates can quickly exceed it, resulting in a substantial tax bill for heirs. It is therefore important to seek professional advice to ensure that you choose the right strategy for your individual circumstances.

Working with a tax specialist at Shipleys Tax can help you navigate the various options and create a tailored plan to minimize IHT while ensuring that your assets are passed on to your intended beneficiaries. By taking proactive steps to reduce IHT, you can ensure that your hard-earned wealth is preserved for future generations, rather than being absorbed by the taxman.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.

CURRENTLY, there’s an extended window for individuals to plug holes in their state pension qualifying years record using voluntary NI contributions. However, this is coming to a close after 5 April 2023.

In todays Shipley’s Tax blog we look at what you need to do check if can you have full National Insurance credits on retirement.

UPDATE: 08/03/2023

Deadline now extended:

The government has just announced an extension of the deadline below to 31 July 2023. Further information below.

What’s happening?

As the end of the current tax year approaches, UK taxpayers have until 5 April 2023, to make voluntary Class 3 National Insurance (NI) contributions to fill any gaps in their NI record. This is particularly important for individuals who have missed payments due to career breaks or other reasons.

NI contributions are paid by employees and the self-employed if their earnings exceed a set threshold. Providing you earn enough in any given year, you will be treated as having a “qualifying year” for NI purposes which will be added to your NI record which can directly affect your entitlement to the state pension and other benefits. This is important because the contributions help individuals build up entitlements to state benefits such as the state pension, bereavement benefits, and Jobseeker’s Allowance. The amount of contributions a person makes over their working life determines their entitlement to these benefits.

UK taxpayers have until 5 April 2023, to make voluntary Class 3 National Insurance (NI) contributions to fill any gaps in their NI record.

What happens if I have gaps in my NI record?

Missing years can result in a shortfall when retirement age is attained, meaning only a partial pension is paid. So if the gap is substantial, there may be no entitlement at all. To permit people to catch up on missing years, the government allows payment of Class 3 NI at a fixed rate – known as “voluntary contributions” – to be paid. Making voluntary contributions can help to ensure you have a complete record of contributions and therefore maximize your entitlement to state benefits. This is crucial for individuals who have taken career breaks or periods of unemployment, as this can have a significant impact on your NI record.

How far can you go back?

Normally, you can only go back the last six years. However, there is a current HMRC incentive extending the window back to 6 April 2006 -meaning you can check your NI records going back over seventeen years.

From 6 April 2023 this will revert to the standard six years. It is therefore crucial that you check your NI record and make good any missing years’ contributions for tax years prior to 2017/18 before that date or the opportunity may be lost for good.

Update 08/03/2023: This deadline has now been extended to 31 July 2023.

However, there is a current HMRC incentive extending the window back to 6 April 2006 -meaning you can check your NI records going back over seventeen years.

In summary, if you have missed any NI contributions over your working life, it’s important to consider making voluntary contributions before the extended deadline closes. This will help you to maximize your entitlement to state benefits and ensure that you have a complete record of contributions. However, it’s important to consider your own circumstances and seek professional advice before making any decisions.

If you are affected by any of the issues above and would like more information, please call 0114 272 4984 or email info@shipleystax.com.

Please note that Shipleys Tax do not give free advice by email or telephone.