New probate fees to affect many estates
The government has revived plans to
raise probate fees in England and Wales.
A new, banded structure for probate
fees in England and Wales is to be introduced, according to a written
statement issued after the 2018 Budget.
The announcement comes despite the 2018
Budget barely mentioning inheritance tax (IHT). There was widespread
speculation about reforms to IHT after the Chancellor commissioned
the Office of Tax Simplification (OTS) to review the tax in January
2018. However, with the full findings of the OTS review yet to be
published, the only change to IHT announced in October was a small
adjustment to the legislation for the residence nil rate band –
this being such a complex piece of legislation, it had been wrongly
drafted.
New fee structure
The government made a very similar
proposal on probate fees in March 2017, and at
the time it was heavily criticised as being a stealth tax rather than
a simple fee adjustment. The argument was never resolved and the
issue was eventually lost in the legislative process around the last
General Election.
Since then, the
government has taken on board some of the original criticism and cut
the fees they were proposing, particularly for larger estates:
|
Value of estate |
Old Proposal |
New Legislation |
|
Up |
Nil |
Nil |
|
£50,001 – |
£300 |
£250 |
|
£300,001 – |
£1,000 |
£750 |
|
£500,001 – |
£4,000 |
£2,500 |
|
£1,000,000 – |
£8,000 |
£4,000 |
|
£1,600,001 – |
£12,000 |
£5,000 |
|
Over |
£20,000 |
£6,000 |
The current fees are £215 for
individual applications and £155 via a solicitor, with nothing
payable if the estate value is up to £5,000. Under the new banding,
there is a maximum effective charge for probate of 0.5% of the
estate, which is triggered at £50,000 (a £250 fee) and £500,000 (a
£2,500 fee).
The new fees are scheduled to come into
effect 21 days after the legislation is passed, and there is very
little that can be done to mitigate the impact. They are payable even
if the estate passes with no IHT liability, as is usually the case on
the first death of a married couple or civil partners, or if the
value of the estate is covered by the available nil rate and
residence nil rate bands.
If you would like help with a probate
application then please get in touch.
Rise in HMRC mediation cases
There has been a dramatic increase
in the amount of disputed tax collected by HMRC through mediation,
according to research by law firm RPC.
According to RPC, £40.8 million was
collected through mediation for the year ending 31 March 2018,
compared to £25.2 million for in 2016/17 – a 62% increase. RPC
also revealed that there were 455 successful uses of alternative
dispute resolution in 2017/18, which was up 23% on the previous year.
The increasing use of alternative
resolutions should be advantageous to both HMRC and taxpayers as it
means fewer cases have to go through expensive and time-consuming
legal processes. It also aligns with HMRC’s mission to increase tax
compliance generally and increase revenues for the Exchequer.
HMRC’s engagement with mediation
methods can offer several advantages to those caught in a tax
dispute:
- It speeds things up – legal
processes are traditionally slow, especially when compared to direct
negotiations. - It’s cheaper – As neither side
has to commit time or legal resources to a court case, the costs
should be much lower than more formal routes. This is certainly a
win for HMRC and should be a win for taxpayers as well. - It is confidential – There can
be great value in keeping the dispute private, and out of the court
records. - It is more flexible – Assuming
HMRC and a disputing taxpayer can reach an agreement, it should be
possible to put even long-running disputes to rest.
It is true that the better option is to
ensure tax is paid correctly and on time. But if you are in dispute
with HRMC, and would like some advice on how mediation could help
you, please get in touch.
Time extended on entrepreneur’s relief
New restrictions added to
entrepreneur’s relief (ER) during the 2018 Budget have reduced
access to this valuable tax relief.
ER provides a reduced rate of capital
gains tax on disposal of shares – at 10% instead of 20% – for
individuals, provided they meet certain conditions. These conditions
need to be met throughout a qualifying period, reflecting ongoing
involvement with a business.
From 6 April 2019 the qualifying period
will increase from one to two years. This change means individuals
will have to demonstrate a longer ongoing involvement with a company
to claim the relief.
Specific new requirements on the
shareholding were also introduced. Effective from 29 October 2018, to
claim the relief an individual must have shares that:
- Entitle them to at least 5% of
dividends or profit distributions. - Entitle them to at least 5% of
assets on winding up.
These are in addition to the current
requirements to have at least 5% of the share capital of the company
and at least 5% of the voting rights. However, to balance this, from
April where outside investment dilutes a shareholding to less than
5%, relief on gains made up to that point will be protected.
Different rules apply to shares
acquired through an enterprise management incentive schemes, and
other qualifying conditions will apply.
The rules have been changed in response
to calls on the government to use the revenue lost to ER to help fund
the NHS. Instead of abolishing the relief entirely, the Chancellor
has adjusted the rules as he believes, “encouraging entrepreneurs
must be at the heart of our strategy”.
Get in touch if you are concerned about
how the new rules will affect your plans.
SMEs boost on apprenticeship levy
The government has halved the
apprenticeship levy for small businesses, from 10% to 5%, with a view
to increasing uptake of the scheme.
This means that the government will pay
95% of training and assessment costs for any apprentices taken on by
SMEs. Whilst a date for implementation has yet to be announced, the
move is designed to make the underutilised scheme more attractive to
employers and help address the skills shortage in the UK workforce.
The number of new apprenticeships
dropped by 26% from 2016/17 to 2017/18. Worse, reports suggest that
as many as one-fifth of firms paying the apprentice levy, including
35% of SMEs, do so as a tax write-off and have no plans to actually
train apprentices. The levy industry bodies believe the levy is
poorly understood by many SMEs.
First introduced on 6 April 2017, the
levy was meant to encourage workplace training through a 0.5% tax on
larger employers. As well as paying the levy, businesses with 50 or
more staff also have to release apprentices for one day a week of
off-site training.
Alongside this, the government will
enable larger levy-paying employers to transfer up to 25% of their
funds – increased from 10% – to pay for apprenticeship training
in their supply chains.
If you do choose to take on an
apprentice, you must provide them with a training opportunity that
lasts at least 12 months and employ them in a real job that helps
them attain the knowledge and skills needed to pass their assessment.
Apprentices must also receive the same
benefits as other employees and are paid for their time spent
training or studying off-site. However, their minimum wages are set
much lower, at £3.90 per hour for 2018/19.
If you are considering taking on an
apprentice and would like some advice on the levy, please get in
touch.
VAT change coming for construction industry
A new VAT reverse charge will apply
to construction or building related services from October 2019.
Under the new rules, a VAT-registered
company purchasing certain construction services will be responsible
for accounting the VAT to HMRC, rather than the supplier. The reverse
charge includes goods where the goods are supplied with the specific
services.
The new measures are being introduced
to reduce VAT fraud and evasion by placing the responsibility for VAT
on the customer. HMRC believe that some small VAT-registered
suppliers are charging VAT to their customers, but not then paying
the VAT on to HMRC.
The reverse charge mechanism won’t
apply in certain circumstances, for instance:
- If the supplies are zero-rated,
including the construction of housing. - The customer is an ‘end user’,
for instance the property owner or the main contractor who sells a
new build to a customer. - Where businesses that supply
certain services to connected parties within a corporate group
structure, or with a common interest in land. - The supplier and recipient are
landlord and tenant, or vice versa.
Instead, the normal VAT accounting
rules will apply to these supplies.
If you are concerned the new reverse
charge mechanism will make your VAT administration more complicated,
we can advise you on how best to handle it.