Guidance

HMRC Trusts and Estates Newsletter: March 2024

Updated 28 August 2024

Welcome to the March 2024 edition of the HM Revenue and Customs (HMRC) Trusts and Estates Newsletter.

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Spring Budget 2024

At Spring Budget 2024, these measures were announced.

Capital Gains Tax — higher rate cut for residential property

From 6 April 2024, the higher rate of Capital Gains Tax for residential property disposals will be cut from 28% to 24%. The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band. Private Residence Relief will continue to apply, meaning the vast majority of residential property disposals will pay no Capital Gains Tax.

Administrative change to ease the payment of Inheritance Tax before probate or confirmation

From 1 April 2024, personal representatives of estates will no longer need to have sought commercial loans to pay Inheritance Tax before applying to obtain a ‘grant on credit’ from HMRC. Revised guidance will be published shortly.

Taxation of environmental land management and ecosystem service markets

The government will:

• legislate to extend the scope of agricultural property relief from Inheritance Tax to environmental land management from 6 April 2025
• establish a joint HM Treasury and HMRC working group with industry representatives on the tax treatment of the production and sale of ecosystem service credits and associated units

Read the full consultation response.

Changes to anti-avoidance legislation — transfer of assets abroad provisions

The government will introduce legislation in the Spring Finance Bill 2024 so that individuals cannot bypass anti-avoidance legislation, the transfer of assets abroad provisions, by using a company to transfer assets offshore in order to avoid tax. This applies to individuals who are resident in the UK. The changes will take effect for income arising to a person abroad from 6 April 2024. Read about the Amendments to the transfer of assets abroad provisions.

Replacing non-UK domicile tax rules with a residence-based regime

The government will abolish the remittance basis of taxation for non-UK domiciled individuals and replace it with a simpler residence-based regime, which will take effect from 6 April 2025. The government also intends to move to a residence-based regime for Inheritance Tax. A technical note has been published explaining the changes. Queries or comments about any of the announced changes can be sent to personaltaxinternational@hmrc.gov.uk.

This mailbox will be monitored but during the development of this policy we will not be able to respond to emails directly. Instead, we will use those comments when considering future updates to the technical note and other releases. This will help ensure that the same information is made available to all interested parties at the same time.

Trusts and Estates

Tax free limit for trusts’ and estates’ income

The April 2023 Newsletter described the intention to introduce a tax free (de minimis) amount for income of trusts and estates. The changes were included in Finance (No. 2) Act 2023 and will come into effect for tax year 2024 to 2025 onwards.

From 6 April 2024, settlements and estates with income of all types up to £500 will not pay Income Tax on that income as it arises. Where income exceeds that amount, tax will be payable on the full amount.

The de minimis amount is reduced for some groups of trusts set up by the same settlor.

For accumulation and discretionary trusts with income that exceeds £500, the default basic rate (20%) and dividend ordinary rate (8.75%) will no longer apply to the first £1,000 slice of trust rate income (commonly referred to as the standard rate band). Tax pool adjustment payments due when a discretionary distribution is made continue to be payable, irrespective of the level of trust income in a year.

For estates, the £500 tax-free amount will apply:

• for every tax year of administration, but unused amounts do not roll over to subsequent years when reporting under informal procedures
• to all types of income, after taking off ISA income which continues to be exempt after a person has died until closure or up to 3 years following the death

Trusts guidance

The Trusts, Settlements and Estates Manual (TSEM) has been updated to reflect these changes. For trusts, read the TSEM updates made on 8 February 2024.

A trust is not a registrable taxable trust for the trusts registration service if it has no other tax liability and income remains below the tax free limit (read TRSM25030 — when does a liability to UK taxation trigger the requirement to register. It may nonetheless be registrable as an express trust unless a specific exclusion applies TRSM21010 — what types of trust are required to register.

Effect of the tax free limit on notifying HMRC of estates in the administration period

If an estate has no chargeable income and no chargeable gains then there is no need to notify HMRC, either formally through the trust registration service and Self Assessment, or under informal procedures.

This includes where income is entirely covered by the tax free limit, so fewer estates should need to report or send returns to HMRC. Personal representatives may still need to send a return if there is a chargeable gain or claims need to be made, but in some instances a Capital Gains Tax on UK property return may fulfil the notification requirement. Guidance has been updated at TSEM7410 — Deceased persons — conditions for informal payment procedures and TRSM27010 — Types of trust that need to be registered — registrable estates.

Returns for deceased persons and estates in the administration period

Guidance to help quicker processing of Self Assessment returns for personal representatives and agents of deceased persons in the administration period is at Agent update issue 114

Life Insurance policy gains after a death

Guidance has been updated at IPTM3240 — Person liable to charge — death cases to clarify when gains from life insurance policies, life annuities and capital redemption policies are chargeable as income for the estate of a deceased person and estate beneficiaries. 

Basis period reform — reporting on a tax year basis

Trusts and estates with an accounting date which is not on or between 31 March to 5 April who are affected by the move to the new tax year basis (also known as basis period reform), may need to find out the details of their overlap relief. They will need to do this ahead of submitting Self Assessment tax returns for the 2023 to 2024 transitional year.

The Overlap Relief figure may already be entered as Overlap Profit Carried Forward on a previous Self Assessment return form, such as:

• Trusts and Estate Trade (SA901)
• Trusts and Estate Partnership (SA902)

If a trust or estate, or their agent, does not know their Overlap Relief figure and cannot find it on a previous Self Assessment return, HMRC may be able to help. Contact the trusts helpline for further support. 

Overlap Relief information can only be provided if these figures are recorded in HMRC systems, taken from information submitted by taxpayers as part of previous tax returns. If this information has not been submitted in tax returns, HMRC will not be able to provide it.

Further information on basis period reform, including general guidance, webinars, and a You Tube video, is available on GOV.UK at Get help with basis period reform.

Inheritance Tax and applying for probate

From 18 January 2024, customers applying for probate in England and Wales no longer need to complete an IHT421 probate summary to submit with their IHT400. Instead, the letter we send confirming receipt and processing of the IHT400 will provide a unique code and the details of the estate values which will be needed to make a probate application. Where we are unable to issue a unique code, we will state what action must be taken so we can issue it.

This unique code should be used to apply for probate using the HM Courts and Tribunals Service (HMCTS) online portal. Applications for probate where an IHT400 has been submitted to HMRC will not be possible without the unique code and estate values. 

This new process:

• means that customers will have one less form to complete
• will prevent premature probate applications which causes delays
• will give customers the confidence to proceed with their probate application at the right time

This is all part of our commitment to make things easier for our customers, which is one of our HMRC Charter standards.

The process in Scotland and Northern Ireland will remain the same.

Inheritance Tax helpline

While the majority of telephone calls about the probate process and individual probate cases are now handled by HMCTS, HMRC still maintain an Inheritance Tax helpline.

The IHT helpline often receives calls which can readily be answered by reference to the guidance already available on GOV.UK.

All customers should initially read the Inheritance Tax guidance for general queries.

Practitioners with more technical queries will find that more technical queries can be addressed by consulting the searchable Inheritance Tax Manual (IHTM).

Most questions about the availability of exemptions, reliefs and thresholds can be answered through the IHTM.

Our helpline cannot comment, or offer advice, on:

• whether pension schemes, life insurance products or discounted gift trusts form part of the estate or their value — this information should be supplied to you by the provider of those products
• complex technical issues or interpretation of the legislation
• whether exemptions, reliefs or threshold are due prior to an IHT400 being submitted — you should read the guidance if you believe you have a valid claim, and enter it on to your form IHT400 at the appropriate page, providing the supporting documents where applicable

After we have processed your initial account, we will write to you and give you a specific date, which will be 12 weeks from the processing date, by which you can expect to hear from us should we have any further questions.

Capital Gains Tax on UK property paper return

As announced in Agent Update 106, HMRC made the paper version of the Capital Gains Tax on UK property return, with accompanying notes, available to download on a trial basis. The trial ran between 28 February 2023 and 30 September 2023.

Following the results seen during the trial, the Capital Gains Tax on UK property return will now remain available on GOV.UK.

This form does not replace the online Capital Gains Tax on UK property account and is only intended to assist those who cannot report and pay Capital Gains Tax using the online service.

Paper returns should only be made in certain circumstances. The full list of circumstances can be found on GOV.UK. If your circumstance is not listed but you are having difficulty reporting online, contact HMRC for further help.

Non-resident UK individuals should continue to use the alternative sign in process to report and pay through the Capital Gains Tax on UK property account, unless digitally excluded. Details of the alternative sign in process can be found in CG-APP18-160 — Part 1 Accessing the Capital Gains Tax (CGT) on UK Property Account — Non-UK residents.

Trust registration service — guidance on material discrepancies

The guidance on reporting material discrepancies regarding trust names and trust start dates has been updated. Read guidance on reporting a trust discrepancy.

Further guidance on discrepancy reporting can be found in the Trust Registration Service Manual.

Ongoing monitoring

We have updated the guidance for when discrepancy reporting checks are required as part of ongoing monitoring. Where a trust has not been previously subject to discrepancy reporting, it is only necessary to carry out the checks as part of your risk-based programme of reviews. Further guidance can be found in the Trust Registration Service Manual at TRSM70020 — Discrepancy reporting — Business Relationships and ongoing monitoring.

Consultation on the Money Laundering Regulations

HM Treasury launched a consultation on 11 March regarding the Money Laundering Regulations. The consultation is seeking opinions on a range of matters regarding the improvement of the Money Laundering Regulations 2017. The consultation on improving the effectiveness of the Money Laundering Regulations is now available and will close on 9 June 2024.

The consultation includes a chapter on proposed changes to the trust registration service.