Trust Registration Deadline – September 2022

In 2017 HMRC established the Trust Registration Service (TRS) which is a digital platform trustees are required to use to fulfil their registration obligations for trusts. The main purpose of the TRS is to reduce the risk of trusts being used as vehicles for money laundering. The register includes details of all parties to the trust including the settlor, trustees and beneficiaries.

The onus to register with the TRS and keep the information up to date falls to the trustees.

Trusts which are taxable (ie those with any UK tax liability such as income tax, capital gains tax, inheritance tax, SDLT) should already have registered with HMRC by 31 January following the end of the tax year in which the first tax charge occurred.

What has changed?

HMRC has extended the TRS to include non-taxable express UK trusts following the UK’s implementation of the EU’s 5th Money Laundering Directive (5MLD).

Express trusts are usually created by a written deed and include most trust plans used for estate and IHT planning, such as gift trusts, loan trusts and discounted gift trusts, which do not normally have any tax charges (income tax, capital gains tax or IHT) year on year.

This is because the underlying asset is often an investment bond which allows tax to be deferred until money is withdrawn, although there is the possibility of IHT periodic charges every 10 years or exit charges if the trust assigns the bond to a beneficiary. Other examples include trusts which hold property or shares where no income is received.

Exemptions from registration

HMRC has provided details of certain trusts which do not need to register unless of course, they are liable to pay UK tax and these include:

  • Trusts used to hold money or assets of a UK-registered pension scheme, such as an occupational pension scheme
  • Trusts used to hold life or retirement policies providing that the policy only pays out on death, terminal or critical illness or permanent disablement, or to meet the healthcare costs of the person assured
  • Trusts holding insurance policy benefits received after the death of the person assured, providing the benefits are paid out from the trust within 2 years of the death
  • Charitable trusts which are registered as a charity in the UK or which are not required to register as a charity
  • ‘Pilot’ trusts which were set up before 6 October 2020 and which hold no more than £100 – but pilot trusts set up after 6 October 2020 will need to register
  • Co-ownership trusts set up to hold shares of property or other assets which are jointly owned by 2 or more people for themselves as ‘tenants in common’
  • Will trusts which are created by a person’s will and come into effect on their death providing they only hold the estate assets for up to 2 years after the person’s death
  • Trusts for bereaved children under 18 or adults aged 18 to 25 set up under the will (or intestacy) of a deceased parent or the Criminal Injuries Compensation Scheme
  • ‘Financial’ or ‘commercial’ trusts created in the course of professional services or business transactions for holding client money or other assets

The deadline for registrations for non-taxable trusts in existence on 6 October 2020 is 1 September 2022. Nontaxable trusts created after 6 October 2020 must register within 90 days of being created or otherwise becoming registerable, or by 1 September 2022 (whichever is later).

Once registered, trustees will have 90 days from when they are aware of any changes to update the register.

Penalties for late registration or late notification of changes

HMRC may issue penalties if the trustees fail to comply with the registration or notification deadlines.

Action needed

If you have created a trust or are the trustee of a trust which has not yet been registered with HMRC, we recommend that you look at the guidance on HMRC’s website to check if you are caught by the new registration rules.

A trustee can register the trust by following the guidance here.

You will need to create a Government Gateway user ID and password for each trust you want to register.

If you would like our assistance with the registration process please contact one of our Trust Specialists by emailing TrustRegistration@mooreandsmalley.co.uk or by filling in the form below.

Defined Benefit Small Self-Administered Scheme (DBSSAS) Pensions and the value they can offer you

For owners of a privately limited company, does this sound familiar?

  • Have you not contributed fully to your £40,000 pension annual allowance during the current or latest 3 tax years?
  • Do you have a tapered Annual Allowance?
  • Do you have a low-level salary and high-level dividends?
  • Do you have significant headroom under the Lifetime Allowance?
  • Is the company able to make large contributions from either cash or surplus income?
  • Does your business have significant levels of retained profits? 
  • Do you wish to purchase commercial property as an investment or to trade from?

With tax rates increasing and allowances being frozen, owners of their own private limited company may have a reduced ability and willingness to draw income from their company. As such, retained profits can languish in cash deposits, earning little interest against a high inflation backdrop, risking a potential loss of multiple tax allowances or challenges during a business sale.

It feels like a no-win situation ……………. or is it?!             

Well, not quite. With a robust financial & tax planning strategy, returns on assets and tax savings can be made.

Contributing to a pension is a familiar action to most, but it is digging deeper into defined benefit or defined contribution arrangements which can broaden planning potential.

Defined Contribution (DC) pensions are predominantly personal pensions, SIPPs and SSASs and these are the most common pensions with self-employed individuals or individuals in the private sector. Defined Benefit (DB) pensions are still prevalent in the public sector, but this style of pension is not just exclusive to the NHS or Fire Service…

Cue the Defined Benefit SSAS (DBSSAS).

A DBSSAS benefits from the same features as a Defined Contribution SSAS (DCSSAS), however, the primary differences are how the final pension is calculated and how contributions are funded and assessed for the purpose of an individual’s Annual Allowance (AA). This means that there is potentially significantly greater scope for the company to contribute to a DBSSAS, than there would be to a DC scheme.

DC pensions receive contributions either gross or net of tax. The limit for tax relief (AA) is generally £40,000 pa (this may be reduced for certain individuals).

The contribution to DB pensions on the other hand, is calculated by accounting for the increase in benefits during the pension year. Let’s assume a DB pension provides an income for an individual of £2,500 pa. HMRC multiply this by 16 to determine how much of the AA has been used.

DCSSAS DBSSAS
Method of Annual Allowance assessment Contributions received Benefit accrual
Maximum annual benefit Annual Allowance (2022/23)   £40,000 Annual pension of 1/16th of the Annual Allowance   £2,500   Cost to an employer to fund (up to £145,000)

The question therefore is what does a pension like this cost to fund? The answer to this can be “a lot”!

A pension actuary calculates what funds are required to deliver the target income along with other benefits such as inflationary increases, widows’ pensions and other guarantees.

Enhancements to an individual’s benefits are costly, consequently, the contributions actuarially calculated to provide such a pension are considerably greater than the £40,000 as a monetary amount to the sponsoring employer.  In principle, here’s how it works:

Values used in the examples in this article are for illustrative purposes only and should not be construed as a personalised recommendation. No action should be taken without seeking further formal advice.

Your personal circumstances and therefore your ability to make use of a DBSSAS pension arrangement, contributions and tax reliefs will vary from individual to individual.

Should you wish to discuss DBSSAS further, and find out whether or not it may be suitable for your circumstances, please contact Robin Houghton (rob.houghton@mooreandsmalley.co.uk).

Management accounts and time travel

Between you and I, I wouldn’t say that I was a big consumer of TV programmes but I have, of late, been watching a couple of foreign language series on Netflix which are all about time travel. And last night something was mentioned that made me think about the topic for this blog. A character was describing time as a continuous loop, and they referenced Nietzsche’s thought experiment of eternal recurrence – he was concerned with how we might choose to live our lives if they were destined to forever repeat themselves. I know, I know what some of you are thinking ‘How on earth….?’. Bear with me.

In some ways that describe the focus of this blog; indeed, of many pieces of business / organisational / management advice.  There are certain common themes that always come up. Challenges to a business owner/manager and suitable solutions to such. Yes, technological and IT advances can impact these. But often these developments make business challenges somewhat easier to address – but they rarely banish them altogether. They are always with us, so to speak.

Often the challenges can be thought of as a result of bad habits – they can be solved or minimised but we have got into a bad habit of ‘making do’, ‘muddling through’ and not properly sorting them out. And what better time to do something about them than Spring – the season of renewal.

There are several common themes we encounter in terms of the typical challenges facing many SMEs; one which we frequently come across is a lack of timely, accurate and meaningful management information. This doesn’t necessarily just mean monthly management accounts; but it is very likely the case that materially accurate management accounts, produced quickly after the month-end will be the central pillar of meaningful management information. For themselves, they may not be sufficient to achieve the goal, but they are necessary.

You could be forgiven for thinking ‘Typical! An accountant going on about the need for historic accounts. Management accounts are always backwards-looking and I need to know what is coming up!’. There is a degree of truth in this, but I don’t think that the charge actually sticks.

Yes, management accounts are backwards-looking – but they are also focused on the present, i.e how have we gotten to where we are now; and where exactly are we now in terms of business performance. 

Put another way, if you don’t know where you are and how you have got there it can be quite a challenge to work out what might be coming down the path towards you; and, importantly, what direction your next step should be in.

There will always be a trade-off between accuracy and timeliness when producing accounts.  But if these trade-offs are known we can understand which elements of our data rest on shakier foundations and, importantly, make decisions much more aware of the limits of our knowledge. We know from our work with our clients how they have approached the trade-off question and that it is relatively straightforward to do this.

With Covid, climate change and now the conflict in Ukraine we have witnessed and been impacted by, several unexpected, unusual ‘black swan’ events. There have been so many recently that they are starting to no longer feel unusual.

As many of us have seen, these types of occurrences have the potential to have material, possibly even catastrophic impacts, upon businesses and their operations. 

Timely management data allows the owner to better understand what those impacts currently have been and are and, crucially, what their short to medium term future impact might be. By accurately understanding the recent past of the business, the owner is better able to make a balanced judgement on what the range of options in the immediate future might look like. And as a historical database of monthly management accounts is built up it holds out the potential for some businesses to identify underlying patterns which allow some degree of prediction of the future.

There is another benefit of accurate management accounts and that is if you are contemplating a transaction or receive a tempting approach from a potential buyer. Accurate and timely monthly management accounts, produced over the long term, can allow the owner to more readily communicate the cash generation capacity of the business to a potential funder and/or a potential acquirer. And in both cases will form a fundamental component of clearly and persuasively articulating the ‘value proposition’ of the business.

There can be a degree of nuance and difference from business to business in terms of what the management accounts should include –  but, there is also usually a great deal of commonality relating to such questions as what are the levels of revenue generated?; what is the gross margin per product or service line?; what is the overhead cost base (especially those costs which produce a cash outflow) and to what extent is this smooth or characterised by peaks and troughs?; what is the current working capital position?; are there any problem debtors? and is the business collecting in cash and paying it out on appropriate timescales?

So, let’s turn back to Nietzsche and his thought experiment. If you knew that you were going to live your business life in an eternally recurring time loop what would you do differently now to make that life easier?

The Rise of Environmental, Social, Governance (ESG) Investing

ESG and Sustainable Investing involves prioritising investment into companies that demonstrate a positive impact on the world around us, whether this be socially, environmentally or via the company’s corporate governance. This can be achieved by several methods; for example, investing into companies who work directly to solve issues, like clean energy producers; or investing in those companies making a conscious effort to improve their impact, such as an oil company that is demonstrating industry leading research into reducing carbon emissions.

With climate change becoming an increasingly talked about issue, ESG is unsurprisingly on the rise. Investors are being more mindful of the impact their investments are having on the world around them. This greater consideration has led to what can only be labelled as a boom in ESG and Sustainable Investing, with the ‘Global Sustainable Investment Alliance’ reporting growth of 143% in assets under management from 2016-2020.

So what is leading this increase in ESG and Sustainable Investing?

Whilst ESG investing is beneficial for society, it has also proved to be beneficial for investor’s returns. Among companies listed on the S&P 500 index, those that scored in the top fifth of ESG rankings by MSCI outperformed their counterparts in the bottom fifth by at least three percentage points every year for the past five years. The MSCI World ESG Leaders Index (which consists of the highest scoring ESG rated companies in each sector) is up 20.4% over the last year compared to 18.6% for the MSCI World Index.

There is also simply greater choice for investors in this sector. With the demand for ESG investments increasing, fund managers have latched onto this trend and there are hundreds of new products being added to the market each year.

The changing demographics of investors is also likely to have contributed to the ESG and Sustainable Investing boom, as an increased number of millennials direct their money into investments. A recent survey found that 63% of 18 to 34-year-olds said they would choose a new fund manager based on ESG factors. When asking a group of those over age 55 the same question, this figure fall to 32%.

With an estimated $15-$20 trillion of asset growth in ESG funds over the next 20 years, it is likely that in near future ESG investment is to become the norm rather than the exception.

Should you be interested in discussing the ESG and sustainable investment options that MHA Moore and Smalley have to offer then please do not hesitate to contact our Financial Planning department on 01772 821021.

Please note that past performance is not necessarily a guide to the future and unit prices can fall as well as rise. Should you encash at any time you may get back less than you invested, especially in the early years. For this reason all investments should be made with a view that they are longer term i.e. 5-10 years plus.

The content of this article should in no way be considered to be a personal recommendation. No action should be taken without seeking further formal advice.

MHA Moore and Smalley is registered to provide financial advice in the UK by The Institute of Chartered Accountants in England and Wales and is authorised and regulated by the Financial Conduct Authority and details of our registration can be viewed at https://register.fca.org.uk/ under reference number 448716

What is a Lifetime ISA (LISA)?

The Lifetime ISA (LISA) was originally introduced by the government in April 2017 and was aimed at the younger generation of savers to help purchase their first home or fund retirement.

Since the launch, the take up has been disappointing and there has already been calls to abolish it from MPs on the Treasury select committee. Although this could be down to the LISA’s complexity, there are few providers offering it on the open market, so advertisement has been limited.

To be eligible to save using a LISA, you must be aged between 18 and 39. Individuals can contribute up to £4,000 per tax year into the product and the government will add £1 for every £4 saved. The maximum government top-up is £1,000 per tax year, which should be credited on a monthly basis.

Like a normal ISA all growth is tax free and you can hold the underling monies in cash or in stocks and shares. The LISA can be held alongside a normal ISA, but total contributions in the relevant tax year into ISAs should not exceed £20,000.

Where they differ are the withdrawal restrictions. If the underlying monies held in the LISA are not used to purchase a first home, or to fund retirement,  then any withdrawal prior to age 60 incurs a 25% penalty. For example, if £4,000 is saved and the government boosted it to £5,000, you would end up with £3,750 once the penalty is factored in and you would end up with less than what you would have originally saved. The penalty was cut to 20% between March 2020 and April 2021 in response to the Coronavirus pandemic, which meant that you were only effectively losing out on the government’s contribution. However, since 6 April 2021 the full 25% penalty is back in force, so it’s best to try to only use the LISA if you’re sure the cash is either for a first-home purchase or holding it long-term for your retirement.

Other considerations include the maximum purchase price of the new property (must be less than £450,000) and the product must be held for a minimum of 12 months before it can be used to fund the new house purchase.

This article should not be construed as advice. Whether or not a LISA is suitable will depend upon your personal circumstances. Should you wish to speak to any member of our financial planning team about tax efficient savings vehicles or mortgages please contact our office on 01772 840421.

Lifetime Allowance (LTA) frozen until April 2026

Despite the government proposing that the lifetime allowance (LTA) would increase each year to keep pace with inflation, Rishi Sunak, earlier in the year, froze the LTA at its current level of £1,073,100 until April 2026.

This allowance restricts the total amount that can be saved in a pension before tax charges apply and many in the finance industry have highlighted this as a ‘stealth tax’.

The Treasury estimates that the freeze will raise £990m by 2025/26 as it is going to prevent people from saving more into pensions, so less income tax relief will be claimed. More and more people will also find themselves subject to Lifetime Allowance tax charges, where any growth above and beyond the £1,073,100 could be subject to a charge of up to 55%.

In a low inflation environment, the freeze would be less concerning, however, given the current outlook and potential for rising inflation in the near future, individuals who are either saving for retirement or at retirement should consider how this affects their plans.

For an initial, free, no-obligation chat around your retirement planning please contact one of our experienced Financial Planning Consultants on 01772 821021 or email Philip.brook@mooreandsmalley.co.uk  

The information given in this article should not be construed as financial advice. MHA Moore and Smalley are authorised and regulated by the Financial Conduct Authority (448716).

Protection for your People and your Business

The loss of a loved one can be extremely difficult to come to terms with and whilst having a financial safety net in place won’t ease this pain, it can certainly give you one less thing to worry about.

For businesses, particularly smaller entities, having a contingency plan in place can provide real peace of mind, not only for the Director(s) and/or Shareholder(s) but also their employee’s.

Many smaller businesses rely on ‘key individual’s’ to generate the profits and cash flow. These companies readily look to have cover in place for fire and/or flood protection, public liability or professional indemnity insurance to name a few.

Yet worryingly, few small businesses look to insure their most valuable asset’s, their people!

So, what risks do businesses face?

Borrowing

Whether it be a regularly used overdraft facility or bank lending, without readily available cash to repay these debts the business could face real challenges.

Personal Guarantee’s

Whilst having some life cover in place may not be a condition of bank lending, many banks will protect their interest by way of a personal guarantee, perhaps the client’s biggest asset, their family home.

Director’s Loan Account

Almost one in three business owners are unaware that these loans have to be repaid in the event of the Director’s death.

Over-Reliance on Key People

What would your business do if that key individual was no longer around? Would you have the resources to bring in a replacement? How long would it take to replace them? And at what cost?

No agreement in place

What is the valuation of your company? Where do your shares go on death? What if you suffer a Critical Illness? Would you want your family to receive the cash value of your shareholding? Would your co-shareholders want to keep control of the business?

Perhaps you’ve not considered putting an insurance policy in place to protect your business from these risks, perhaps no one has spoken to you about this type of arrangement or perhaps, you didn’t realise you could protect yourself (at least financially) from these risks.

Recent research states that 53% of small businesses would cease trading in under a year if they lost a key person, whilst over half of UK businesses have left no instructions in a Will or any special arrangements regarding shares.

Public Sector Pensions : The McCloud Judgement

At MHA Moore and Smalley, we have a dedicated specialist team with many years experience in examining the tax and pension affairs of public sector workers, and in particular members of the NHS pension scheme . 

We have expertise in the calculation of projected estimated retirement benefits, pension tax charges, tapered annual allowance, scheme pays election completion and tax return declarations. 

We work in parallel with scheme administrators and our own Independent Financial Advisers (IFA) to ensure we provide a holistic approach so that our clients are fully aware of the details affecting them in order to make a reasoned choice at the right time with the right advice.

If you are retiring in the near future or confused about the impact of the McCloud judgement on your pension, contact our dedicated specialist team.

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Have you got a plan b?

What is your plan ‘b? 

Each year over one million people in the UK find themselves unable to work due to sickness or injury.  

Some of you reading this may have a life insurance policy, perhaps taken out to repay your mortgage in the event of your untimely death. However, in the event of illness or injury what is your fallback position?  

The ‘Family Spending in the UK’ report states that it costs £572.60 per week to run the average family home yet, research tells us that only one in ten of us protect our income.  

Some of us may be fortunate enough to have an employer that pays an enhanced sick pay package, many of us will not. How long does the sick pay last, 4 weeks? 3 months? Perhaps longer for the extremely fortunate. The rest of us will have to rely on statutory sick pay or put another way, £96.35 a week for up to 28 weeks.  

Would that be enough to maintain your family life, to keep that roof over your head and to feed the family? I doubt it.  

Savings could well be an option for some but nearly half of UK households have either no savings or less than £1500. Furthermore, 44% of people would struggle with a loss of income within 6 months.  

Without adequate protection in place what is your plan ‘b?’  

Many of us don’t think twice about insuring our pets or home contents yet we fail to ensure our most valuable asset, ourselves.  

The average UK salary is £30,000 which equates to well over £1 million pounds throughout your working lifetime; surely that is worth protecting?  

If you had a machine on your kitchen table that provided you and your family with their daily income needs, would you insure this machine to make it sure it continued to work no matter what? 

For business owners reading this there is a tax efficient solution that would allow you to secure this valuable cover through your business and save up to 50% on cost over the more traditional method of paying for these policies out of your taxed income.  

Due to Covid-19 and the resulting lockdowns over the last 18 months the vast majority of us will have thought about our own morbidity and mortality.  Many will have had a long and hard think about our own financial situation and how we and our families would cope if the worst happened. 

I will finish this blog with the same question I started with; What is your plan ‘b’ should you be unable to work due to accident or sickness? 

Whether or not these types of policies would be suitable for you, depends on your individual financial circumstances. The information given in this article should not be construed as financial advice. 

MHA Moore and Smalley are authorised and regulated by the Financial Conduct Authority (448716). 

Personal tax planning tips for higher earning individuals

It is no surprise that with greater earnings comes more tax and with the top rate of income tax being 45% for individuals earning over £150,000 it can be useful to consider some strategies which may help in ensuring you do not pay more tax than necessary. Outlined below are some personal tax planning tips and although simple, these can be very effective.

ISA Allowance

For the current 2021/22 tax year, the maximum you can save in an ISA is £20,000. Any interest earned on this amount will be tax free as opposed to interest earned on money invested in non-ISA savings accounts. Utilising your full ISA allowance is an effective way of minimising tax on savings income and as long as any savings or investments stay within the tax-free ISA wrapper, you will continue to earn interest and reap the tax benefits until you withdraw the money.

Tax Efficient Investments

The government offer some attractive income tax reliefs on investments in small companies, namely Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS) and Venture Capital Trusts (VCT). If you were to invest in an EIS company, tax relief of 30% could be claimed on investments up to £1,000,000 in one tax year, giving a maximum tax reduction in that year of £300,000 to offset against your tax liability for the year. However, if your tax liability is less than the 30% tax relief, the relief is restricted to your tax liability amount. The same would apply if you were to invest in an SEIS company, however as these tend to be riskier the tax relief on offer is 50% on amounts invested up to £100,000. Investments in a VCT would offer an income tax relief of 30% by subscribing for up to £200,000 shares.

It is important to note that these are high-risk investments which may not always turn out to be successful, however should you have any spare disposable income this may be an option for you. If this is something you are interested in, we would advise that you seek the appropriate advice before proceeding.

Full Personal Allowance

When an individual’s adjusted net income exceeds £100,000, their tax-free personal allowance is reduced by £1 for every £2 of the excess. This means that individuals with adjusted net income of £125,140 or more will have no personal allowance in 2021/22. For these purposes, adjusted net income is taken as an individual’s total taxable income before taking into account their personal allowance, less any gift aid or pension contributions.

If your adjusted net income is above £100,000, this can be reduced to maximise your entitlement to the full personal allowance by making gift aid contributions to charity or contributions to your personal pension.

In addition to helping maximise your entitlement to the full personal allowance, gift aid and pension contributions can provide some tax relief against your income tax liability by extending the basic and higher rate tax bands, resulting in a greater proportion of your income being taxed at tax rates lower than 45%.

It is important to note that with pension contributions, there is an annual allowance limit for all gross contributions of £40,000 each year and if contributions exceed this amount a charge may be incurred. Your annual allowance amount may also differ depending on your level of income as those with a taxable income over £240,000 will have their annual allowance restricted. If you would like any advice with regards to the potential tax impacts of making pension contributions, our financial planning team can assist.

Values of investments can fall as well as rise and there is no guarantee that an investor will receive a return of their original capital, especially in the early years.

The content of this article should in no way be considered to be a personal recommendation. No action should be taken without seeking further formal advice.

Whether or not an ISA, Pension or tax efficient investment scheme is suitable for you will depend on your personal circumstances and objectives; they may not be suitable for everyone.

MHA Moore and Smalley and is registered to carry on audit work in the UK by The Institute of Chartered Accountants in England and Wales and is authorised and regulated by the Financial Conduct Authority and details of our registration can be viewed at https://register.fca.org.uk/ under reference number 448716.