Probate fees are due to increase – but it seems that Brexit has forced a delay.  It has been reported in the press that the controversial new probate fees payable to execute the will of a deceased person in England and Wales, which were expected to come in on April 1 2019, have been delayed indefinitely because Parliament has been so consumed by Brexit.

The increases, branded by critics as a stealth tax, will see the costs of probate rise from the current flat charge of £215 to a minimum of £250. Under the new six-band structure, fees rise to a maximum of £6,000 (at an estate of £2m), depending on the size of the estate being administered.  According to the Financial Times, tax experts said they had received emails from the Ministry of Justice last week saying the motion had “not yet been scheduled”. “This means that the new probate fees regime will not be introduced on April 1,” the email said. The Ministry of Justice said the motion to pass the increases would be tabled as soon as “parliamentary time allows”.

HMRC has put in place a temporary process when applying for probate while the probate fee changes are being considered. Probate registries will accept applications for probate before the account has been processed by HMRC. The application must include a note to say that the appropriate inheritance tax forms will follow in due course.  However, note that (at the time of writing) there is no suggestion from HMRC of any change to the Government’s plans to introduce these new probate fee charges.

The UK’s tax authority has made a final appeal to contractors facing the controversial loan charge to settle ahead of an imminent deadline. The 2019 loan charge is aimed at tackling a type of employment tax avoidance the authorities call “disguised remuneration”. Instead of facing a large tax bill in one year, HM Revenue and Customs says people can settle and spread the cost.

But many of those facing the charge argue that it is unfair. Some say they face “financial ruin” as a result, and an influential Lords committee said it had heard “disturbing evidence” about HMRC’s approach. MPs are debating the topic, and there have been calls for a delay to the charge – which effectively comes into force on Friday.

Under these schemes, an estimated 50,000 workers – mostly contractors – were paid by way of a loan, an arrangement that was intended to avoid tax and National Insurance contributions. HMRC said it never approved these schemes and had always said they did not work. The charge will add together all outstanding loans, over the course of up to 20 years, and tax them as income in one year. Those affected will have to pay by the end of January next year.

Current status and tax and pensions implications of the extension of civil partnership status to mixed sex couples.  Every now and then legislation is made that, aside from having legal, commercial and human consequences, also has (or will have when enacted) an impact on taxation. Taxation is not the driver of the change that is the subject of this article, but there are tax consequences; important tax consequences.

The change is incorporated in the Civil Partnerships, Marriages and Deaths Bill currently moving through Parliament. Broadly speaking, it will ensure that civil partnerships in England and Wales will be extended beyond same sex partnerships. This will mean that unmarried couples in England and Wales will be able to choose between marriage and civil partnerships if they want to formalise their relationship.

Theresa May announced the proposal at the Conservative Party conference. There is effectively a two-stage process that is being undertaken.

The Civil Partnerships, Marriages and Deaths (Registration Etc) Bill (a Private Members Bill introduced by Tim Loughton) provides for the Secretary of State to undertake a review before the necessary amendments are made. The original explanatory notes state (in relation to the extension of the definition of civil partnership) that:

“Under section 3(1)(a) of the Civil Partnership Act 2004, two people are not eligible to register as civil partners of each other if they are not of the same sex. Equivalent restrictions apply to eligibility for registration in Scotland and Northern Ireland under s.86 and s.138 of the Act.”

And

“Clause 2 [of the Bill] requires the Secretary of State to undertake an assessment (which may include assessing the demand for civil partnerships amongst opposite sex couples) and then bring forward proposals for how the law ought to be changed to bring about equality of treatment with respect to the future ability of opposite-sex and same-sex couples to form a civil partnership. It then provides a power to amend the law accordingly. The power to make regulations is subject to the affirmative resolution procedure.”

An amendment to his own Bill by Mr. Loughton, which was carried, takes things a little further though. The amendment requires the Government (as a kind of “hard red line”) “to make regulations … to bring about equality between same-sex couples and other couples” within six months of the Bill becoming law. This means that civil partnerships are set to be extended to all by Autumn 2019.

The Bill has, at the time of writing, received its second reading in the House of Lords and will now proceed to the committee stage.

It was made clear by the Minister of State for the Home Office that despite the existence of a separate private members bill to allow civil partnership for siblings this Bill would almost certainly not receive Government support.

Civil partnerships were introduced for same sex couples by the Civil Partnership Act 2004. In 2013, the Marriage (Same Sex Couples) Act 2013 legalised same sex marriage in England and Wales; and the Marriage and Civil Partnership (Scotland) Act 2014 legalised same sex marriage in Scotland. However, the law does not currently permit civil partnerships between mixed sex couples anywhere in the UK.

The proposal to extend civil partnerships to mixed sex couples comes after a Supreme Court case in June 2018, which ruled in favour of Rebecca Steinfield and her partner Charles Keidan, who campaigned to be allowed to have a civil partnership. Following the case, the Court said that the Civil Partnership Act 2004 was incompatible with the European Convention on Human Rights.

In her announcement, the Prime Minister said “As home secretary, I was proud to sponsor the legislation that created equal marriage. Now, by extending civil partnerships, we are making sure that all couples, be they same sex or opposite-sex, are given the same choices in life.” The Government has indicated that there are still a number of legal issues to consider including in relation to pensions and family law, and ministers are consulting on the technical detail.

In response to the Supreme court ruling, the Scottish Government also launched a consultation (which closed on 21 December 2018) on the possibility of extending civil partnerships to mixed sex couples in Scotland.

It is clear though that the extension of formal civil partnership status will not extend to siblings eg brothers and sisters, brothers and brothers, sisters and sisters.

Consequences for tax and pensions

All of the tax consequences of a Civil Partnership, as we currently know it, will extend to a mixed sex civil partnership – for example, the inheritance tax (IHT) transferable nil rate band and residence nil rate band, exempt IHT transfers and no gain / no loss transfers for capital gains tax (CGT).

The proposed extension of formal civil partnership status to mixed sex couples would definitely deliver a benefit to the survivors of pension scheme members. The exact nature of survivors’ benefits is subjective and varied by scheme and by category of survivor. The key point though is that survivors’ benefits, whatever their exact form, will be available to a wider range. Good for the survivors in mixed sex civil partnerships, but the corollary is that there will be additional cost and potential funding implications for the schemes affected.

The regulator has worked with other government agencies on Project Bloom, set up to tackle pension scams. Project Bloom has identified a number of gangs with close family ties targeting pension savers. A number of criminal investigations into these family gangs are underway between TPR, government agencies and the police.

It says a number of cases are ongoing. The common theme appears to be family ties among the conspirators, with relatives benefiting from the scam. TPR says it has evidence of criminal behaviour worth tens of millions of pounds, involving siblings, married couples, parents and their adult children.

TPR says in some instances the criminal families hire rogue financial experts with specialist pension knowledge, including accountants, advisers and trustees, to manage big scams for them. The TPR are keen to point out the role trustees and administrators play in preventing members from falling victim to scams by identifying suspicious requests early – the better they are at spotting the signs of a scam, the quicker members can be warned and TPR can investigate.

The money purchase annual allowance (MPAA) has caught almost one million over-55s, who must now live with a permanent reduction to the amount they can put into their pension tax free. Data from HM Revenue & Customs has revealed 980,000 over-55s who used the pension freedoms between 2015 and2019 have been caught by the MPAA, The Financial Times reports. As a result, their annual allowance has been cut from £40,000 to £4,000. The figures were released following a freedom of information request by Just Group. Speaking to the paper, Just Group director Stephen Lowe called on the regulator to ensure people are able to receive independent and impartial guidance to prevent people from making uninformed, irrevocable choices that can cause harm. The MPAA was set at £10,000 in April 2015, when the freedoms first came into force. However, this was cut to £4,000 by chancellor Philip Hammond in 2017.

A million more young adults in the UK are living with their parents than were two decades ago, research suggests. A quarter of 20 to 34-year-olds do so, the study, by think tank Civitas, says.

Since 1998, this has risen by 41% in London, where housing is most expensive, but by much less in cheaper areas like north-east England (14%) and Yorkshire and the Humber (17%). And for 23-year-olds across the UK, the proportion living with parents has risen from 37% in 1998 to 49% in 2017.

Commentators have observed that as owner-occupation and social housing have each become more difficult to enter, hundreds of thousands of young adults have taken one look at the high rents in the private rented sector and decided to stay with their parents a bit longer instead. As such it is becoming more important that the government take this into account when forecasting future housing need.

A recent decision confirms that not all “parties” are political parties for the purpose of the IHT exemption in section 24 IHT Act 1984.  It is well known that gifts to charities and political parties are exempt from inheritance tax (IHT). The key is to ensure that the intended recipient is indeed a charity or a political party (both as defined in legislation). Under section 24, only donations to a political party that, at the last election preceding the transfer of value, had at least two MPs or one seat and 150,000 votes will be exempt. The UK Independence Party (UKIP) did not fulfil this condition.

The UK Tax Tribunal (First-tier) has therefore decided that HMRC was within its rights to charge £163,000 of inheritance tax on nearly a million pounds of donations made by campaigner Arron Banks (via his companies) to UKIP before the Brexit referendum in June 2016.

Mr Banks argued that the gifts ought to have been tax-exempt as donations to political parties and that denying the exemption was a breach of his human rights. However, the Tribunal held that UKIP was not a political party under the relevant legislation because its two MPs had not been elected at a general election (Banks v HMRC, 2018 UKFTT 617 TC).
Since we have also mentioned charities, it is interesting to note that a recent report concluded that more than 50% of private “charitable” trusts did not pass the “public benefit” test (necessary for a body to be considered a charity). We will come back to this topic in a future bulletin but this should also be a reminder that, when making a Will, if a legacy is to be left to a charity (especially if it is intended to take advantage of the reduced 36% IHT rate on the rest of the estate), it is essential to ensure that the intended done is in fact a charity for these purposes. Often gifts are made to local clubs and associations or schools and not every one of these will actually be a charity.

The risk of a global recession has surged to the top of the worry list for credit investors even as they push down their cash balances to snap up new-year issuance, according to Bank of America Merrill Lynch’s latest survey of European money managers. Almost 30% of respondents to the bank’s poll cited a worldwide economic slump as their largest concern, the strongest consensus for any single risk since June 2017. No one cited rising bond yields or higher inflation as their top worry, while only 2% said it was Brexit.

European investors have been piling into credit so far this year, adding corporate hybrids, insurance and subordinated bank debt alongside defensive positions in utilities, according to BAML. That’s pushed cash allocations down to 3.5% and left a majority of investment-grade money managers feeling that spreads are too tight. Investors are also sceptical that another round of cheap central bank funding for European lenders from the ECB will provide much of a boost — they believe the policy has been so well signalled that it’s now priced in. Even so, almost a quarter of respondents expect tighter senior bank spreads as a result.