Notes to Editors

By Suzanne Flores,2014-07-10 18:24
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Notes to Editors ...

    S T E P

    Society of Trust and Estate Practitioners16 March 2005 For immediate release



The threshold will rise from 6 April ?263,000 to:

2005-06 ?275,000

    2006-07 ?285,000

    2007-08 ?300,000


There will be a consultation on extending the Child Trust Fund payments into

    later years.


The Government is indexing the capital gains tax annual exempt amount in

    line with prices. It will therefore increase to ?8,500. Gains arising on disposal

    of a principal private residence will continue to be exempt from capital gains



The Government continues to work with the industry to secure consensus on

    the best way to simplify trusts taxation further to help people manage their

    affairs, whilst ensuring that trusts are not used to achieve an unfair tax


The Government will introduce new rules so that tax for certain trusts with

    vulnerable beneficiaries is charged as if the vulnerable person were receiving

    the income and gains directly. This will apply from 6 April 2004; and a

    standard rate band of ?500 which will mean that 25,000 trustees that

    consistently receive taxed income under this amount will no longer have to

    submit a self-assessment tax return every year. This will apply from 6 April



Who is likely to be affected?


Trustees, beneficiaries and settlors of trusts.

General description of the measure

    A package of measures to modernise the tax system for trusts. Two of these (a standard rate band for trustees who pay tax at the rate applicable to trusts and a new tax regime for certain trusts with vulnerable beneficiaries) are being introduced and a further discussion paper is being issued today to consider the details of a number of other simplifying proposals.

Operative date

    The regime for certain trusts with vulnerable beneficiaries is backdated to 6 April 2004; the standard rate band comes into effect from 6 April 2005; and other measures are likely to be introduced from 6 April 2006.

Current law and proposed revisions

    In his 2004 Budget, the Chancellor announced that the tax rate applicable to trusts (RAT) would be raised to 40% to combat tax avoidance. He also announced that there would be new measures to prevent this change increasing burdens on certain trusts that have vulnerable beneficiaries.

Two measures were announced a new tax regime for certain trusts with

    vulnerable beneficiaries, and a standard rate band of ?500 for all trusts paying tax at the rate applicable to trusts. Legislation giving full details of these measures will be published in the Finance Bill.

    A number of other proposals were put forward at Budget 2004. These included a set of common definitions and tests for trusts, and the streaming of income through trusts. These measures will simplify the taxation of trusts and were widely supported during consultation last year. However, during subsequent consultation, respondents also raised a number of concerns about some of the detailed aspects of the proposals. A summary of the findings of this consultation has been published today.

    Therefore, the Inland Revenue will carry out further development work on these measures and a discussion paper has been published today. It is intended that draft legislation will be published for consultation later this year, prior to the measures being included in next year’s Finance Bill.



    The Government is continuing to review the residence and domicile rules as they affect the taxation of individuals and will proceed on the basis of evidence and in keeping with its principles. It would welcome further


    contributions to the debate, which will then be taken forward by the publication of a consultation paper setting out possible approaches to reform.



    Civil partners will enjoy the same tax advantages as married couples now that the Budget has put right an anomaly in civil partnership legislation.

    From 5 December, cohabiting same sex couples can enter into civil partnerships, which will give them the same legal rights as married couples. However, the Civil Partnership Act does not address important tax issues, including inheritance tax (IHT) and capital gains tax (CGT), and the Budget has corrected this anomaly.

Richard Frimston of STEP comments:

    "Civil partners will have the same rights under tax law that married couples currently enjoy, such as exemption from inheritance tax, and there will no longer be any CGT liability on transfers between the partners."


    Now that cohabiting same sex couples will have the same IHT and CGT rights as married couples, what tax planning should they put in place?

Richard Frimston explains:

    "Same sex couples who become civil partners will need to write new wills. If they do not have a will and one of them dies they must be aware that intestacy rules apply. This may lead to the partner having to share the estate with relatives who were never intended to benefit."

    "As with married couples, same sex couples should also be aware that the IHT exemption does not apply where one of the partners is a non-domiciled resident."


Who is likely to be affected?

Same-sex couples.

General description of the measure

    The measure paves the way for changes to all existing tax legislation, both primary and secondary, so that civil partners formed as a result of the Civil Partnership Act 2004 (CPA) will be treated the same as married couples for


    tax purposes. It gives the Inland Revenue the power to introduce regulations to effect those changes.

Operative date

The tax changes will take effect from 5 December 2005 the date the CPA

    comes into force.

Current law and proposed revisions

    Married and unmarried couples are usually treated differently for tax purposes. For example a husband and wife are protected from tax charges that might otherwise arise if they transfer assets between them. This protection is not available to unmarried couples. On the other hand, there are situations where husband or wives can be taxed on certain benefits that are provided for their spouse but if the persons concerned are unmarried that is not the case. There are, in addition, limited circumstances in which unmarried couples are treated as if they were married.

    The CPA creates an entirely new legal status of civil partner, giving same-sex couples in the UK the opportunity of acquiring a legal status for their relationship.

    Couples who enter into a civil partnership will gain a package of rights and responsibilities reflecting those already available to a married couple.

    For tax purposes, the Government has announced that civil partners will be treated the same as married couples. Therefore, from the start of the civil partnership scheme, tax charges and reliefs and anti-avoidance rules will apply equally to married couples and civil partners, and those treated as such.

    Full details will be published with the regulations. The key areas affected include:

Inheritance Tax (IHT)

    Transfers between married couples in lifetime or on death are generally exempt from IHT without limit. On a par with married couples, civil partners will be able to make gifts or bequests to their partners with the benefit of IHT exemption.

    There will be consequential changes elsewhere in the IHT code to extend to civil partners other provisions currently applying to spouses. For example, IHT anti avoidance provisions that apply to marriage will be applied to civil partnerships.

Capital Gains Tax (CGT)

    CGT will apply in relation to civil partners as it applies in relation to married couples. In particular:


Private Residence Relief

    Only one property owned by a couple, whether that property is owned solely or jointly, may be treated as the principal private residence of either of them at any time for CGT purposes and thus qualify for private residence relief; transfers of assets between persons who are civil partners who are living together will be on a no-gain no-loss basis, and thus not attract an immediate CGT charge; and civil partners will be “connected persons” in the same way as husbands and wives. They will also be connected with certain other persons, such as close relatives of their civil partner, in the same way as husbands and wives.

    Furthermore, where one partner settles property into a settlement under which the other partner can benefit, the settlor may be liable to CGT by reference to capital gains realised by the trustees if the relevant conditions as to the residence of the settlor, and certain other conditions, are met.


    There are two minor areas where the ISA rules will be amended to cover a civil partner: firstly the eligibility of a spouse of a Crown employee serving overseas to subscribe to an ISA; and secondly the ability of a husband or wife to subscribe to an ISA account on behalf of their spouse who lacks the mental capacity to operate their own ISA account.

Bank and building society interest paid to individuals

    Banks and building societies are required by law to deduct tax at the lower rate (20%) before paying interest to savers, unless they have authority to pay the interest gross, that is, without tax taken off. The category of people who can sign a gross registration declaration (on form R85) on behalf of a person who lacks the mental capacity to operate their own bank or building society account will be extended to include civil partners.

Pension Schemes (other than state)

    The current pension tax legislation will be amended so that references to husband, wife, ex-husband, ex-wife, spouse, ex-spouse, surviving spouse, widow, widower will include civil partner, former civil partner and surviving civil partner under the terms of the CPA. Changes will also be made to the pension tax simplification legislation that takes effect from 6 April 2006 to account for the terms of the CPA.


    Anti-avoidance legislation will be extended to include civil partners in the same way as spouses. The anti-avoidance Settlements legislation prevents people avoiding tax by transferring their income to other people who pay less


    tax. There are special rules for husbands and wives and these will be extended to civil partners.

Beneficial Ownership - Sections 282A and 282B ICTA 1988

    Married couples frequently own property jointly and the Inland Revenue treats them as though the property is held equally so any income arising is taxed 50/50. However, if the couple are not in fact entitled to half the income each, they can elect to have income from property they hold jointly taxed on a basis other than 50/50.

Civil partners will be treated in exactly the same way.

Company Control Tests

    Section 416 of the Income and Corporation Taxes Act provides various tests for identifying who controls a company. It also deems a company to be under the control of a person if it is controlled by an associate of that person. The term “associate” is defined in section 417 and includes husband or wife. The definition of "associate" will also include civil partner.

Stamp Duty and Stamp Duty Land Tax (SDLT)

    There is currently an exemption from stamp duty and SDLT for transactions carried out in connection with divorce such as a transfer of shares or the transfer of the marital home from joint ownership into the sole ownership of one of the ex spouses.

    There will be a similar exemption for transactions carried out in connection with the dissolution of a civil partnership.

Transfer of assets abroad

    Civil partners will be treated in the same way as married persons under the transfer of assets abroad legislation in sections 739-746 ICTA 1988. This legislation aims to prevent individuals avoiding income tax by means of the transfer of assets. It applies where, as a result of a transfer and/or any associated operations, income becomes payable to persons resident or domiciled outside the UK.

    The legislation provides that an income tax charge may arise on the husband or wife of an individual who makes a transfer of assets, where the spouse is involved in the transfer or associated operations. This will in future apply equally to civil partners.

    In addition, we will extend to civil partners the practice of not normally seeking to tax under section 739 UK domiciled individuals in relation to income of their non domiciled husband or wife, where that spouse would be outside the section 739 charge because of his or her entitlement to the remittance basis.

Married couple’s allowance


    Married couple’s allowance is currently available to married couples where one of the spouses was born before 6 April 1935. Civil partners will have similar rights so that from the date that the registration scheme commences, civil partnerships and also new marriages meeting the age criteria will have an allowance based on the income of the highest earner. There will be no change to the arrangements for existing marriages.

Blind person’s allowance

    The Blind Person’s Allowance (BPA) contains a provision that any unused allowance (because the person does not have sufficient income) can be transferred to their spouse. Surplus BPA will also be transferable to a civil partner.



    The Inland Revenue has issued a bundle of news releases to accompany the budget. These can be accessed via the following web link:

Those of most interest to STEP members are:

    ISA and Child Trust Funds: All FSA Authorised or Regulated

    News Release Number 3

Stamp Duty Land Tax: Commercial Disadvantaged Areas Relief News

    Release Number 9

Modernising the Tax System for Trusts

    News Release Number 10 (copied above)

Disclosure Rules: Stamp Duty Land Tax and Commercial Property

    News Release Number 17

Chargeable Gains: Trustees’ Change of Residence

    News Release Number 24

Chargeable Gains: Temporary Non-Residents

    News Release Number 25

Chargeable Gains: Location of Assets etc

    News Release Number 26

Civil Partnerships

    News release 28


Customs & Excise have issued the following news releases:

VAT: Avoidance Scheme Disclosure Rules

    News Release Number 6

VAT: Relief for Certain Charities

    News Release Number 15




1. The Society of Trust and Estate Practitioners (STEP) is the professional

    body for the trust and estate profession. STEP members come from the

    legal, accountancy, corporate trust, banking, insurance and related

    professions and are involved at all levels in the planning, creation and

    management of and accounting for, trusts and estates, executorship,

    administration and related taxes.

2. STEP is an international learning network with nearly 11,000 members

    in 69 branches spanning 55 jurisdictions across the globe. Membership

    covers common, civil and sharia law jurisdictions and is concentrated in the

    UK, the Crown Dependencies, Canada, the Caribbean and Europe. STEP has

    branches in the following jurisdictions worldwide:

    Anguilla Australia Bahamas Barbados Belgium Bermuda British Virgin Islands Canada Cayman Islands Cyprus Dubai England & Wales France Gibraltar Guernsey Hong Kong Ireland Isle of Man Israel Italy Jersey Liechtenstein Luxembourg Mauritius Monaco The Netherlands New Zealand Panama Scotland Singapore South Africa Switzerland Turks & Caicos Islands

    United Arab Emirates United States of America

For more information on STEP please contact the following:

Keith Johnston

    Head of Policy and Communications STEP

    Tel: + 44 (0) 20 7838 4875

    Mobile: +44 (0) 7884 182636

    Fax: +44 (0) 20 7838 4890


    Society of Trust and Estate Practitioners, 26 Grosvenor Gardens Street,

    SW1W 0GT, UK


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