UK: Weekly Tax Update - September 21, 2015

Last Updated: 1 October 2015
Article by Tina Riches

1 General news

1.1 Draft guidance on automatic exchange of financial account information

HMRC has published its draft guidance on the implementation of common reporting standards for automatic exchange of financial account information.

The guidance covers the Common Reporting Standard (CRS) and the incorporation of the CRS into EU law. Once finalised it is intended to incorporate amended and updated versions of the existing guidance on FATCA and the Crown Dependencies and Overseas Territories (CDOT) arrangements.

The guidance does not replace or override the CRS Commentary, but brings together the key concepts and provides additional guidance for UK-specific issues, including where there are differences between the CRS, FATCA, and CDOT rules.

One point of difference highlighted is in connection with the potential application of the rules to trusts concerning when a trust will be regarded as resident in the UK for the purposes of an agreement. The guidance comments:

  • for CDOT and the Directive on Administrative Cooperation purposes, if one or more of the trustees are resident in the UK for tax purposes then the trust is UK resident unless the trust is resident for tax purposes in another jurisdiction with which the UK automatically exchanges financial account information and the trust reports details of Reportable Accounts to that jurisdiction;
  • for FATCA purposes a trust will be regarded as resident in the UK for reporting purposes where most or all of the trustees are resident in the UK for tax purposes. Where some of the trustees, but not all, are UK tax resident, then the Trust is also to be treated as UK resident if the settlor is both resident and domiciled in the UK for tax purposes.

1.2 HMRC concludes consultation on penalties

HMRC has published a summary of the responses to a discussion document it issued on 2 February 2015 on how to improve the tax penalty regime.

This document summarises characteristics that HMRC (and the respondents) consider should underpin any new penalty regime.

Penalties should:

  • encourage compliance – they should not be intended to raise revenue;
  • be proportionate to the offence;
  • be applied fairly;
  • be a credible threat through being easy and cheap to collect; and
  • be consistent and standardised.

HMRC acknowledged that the current system is inconsistent and creates an administratively burdensome environment of high-volume low-value penalties, which were often successfully appealed. The ultimate goal, therefore, would be to apply fewer, but better-targeted, penalties. This would free resource at HMRC to tackle serious non- compliance.

The focus of the discussion was on penalties for lateness or inaccuracies. In the case of the former, HMRC said it would look at not charging a penalty where no tax is due, the period of lateness is short or the default is the taxpayer's first.

HMRC will consider introducing a penalty interest regime, meaning the sanction would be inherently proportional, and increasing the opportunities for reasonable excuse and mitigation.

Consideration will be given to increasing the penalty levels according to the degree of inaccuracy, the taxpayer's compliance history and/or whether the taxpayer co-operated to correct their tax position. For both types of penalties HMRC said it would look at improving its guidance and whether non-financial sanctions, such as increasing compliance burdens on non-compliant taxpayers, could be introduced.

Subject to the government's agreement, HMRC said it would issue an updated consultation document on penalties for lateness in due course and, owing to its increased complexity, a document on penalties for inaccuracy further down the line. The earliest possible date for legislation would be Finance Bill 2017.

2 Private client

2.1 Scottish rate of income tax

HMRC has issued a reminder that the Scottish rate of income tax will be introduced from 6 April 2016. It adds that:

'You'll pay the Scottish rate of Income Tax if:

  • you're resident in the UK for tax purposes;
  • your main residence for most of the tax year has a Scottish postcode.' HMRC will contact potential Scottish taxpayers before April 2016. If the address HMRC holds for someone is in Scotland, he will be classed as a Scottish taxpayer.

A Scottish taxpayer's April 2016 tax code will begin with the letter 'S'.

The employers of Scottish PAYE taxpayers will be informed directly.

National Insurance contributions are unaffected by the introduction of the Scottish rate of Income Tax.

2.2 Spotlight 26 - contractor loan schemes

HMRC has issued a spotlight on contractor loan schemes indicating its view that these schemes do not work and strongly advising any contractor or freelancer who has used such a scheme to withdraw and settle his tax affairs.

The commentary on this scheme and its timing is interesting. HMRC says that it considers the scheme to be 'tax avoidance'. This seems a little odd, because tax avoidance is not itself illegal and, indeed, some users of the scheme would presumably hope that that was exactly what it was.

It goes on to say ' these arrangements artificially divert the income through a chain of companies, trusts or partnerships and pay the contractor in the form of a 'loan'. The 'loans' are claimed to be non-taxable because they don't form part of a contractor's income. However, in reality the 'loans' aren't repaid and the money is used by the contractor as if it were his or her income .'

HMRC has lost the loans-as-income point in the First-tier Tribunal (FTT) and the Upper Tier Tribunal (UT) in the Rangers case HMRC v Murray Group Holdings Limited and others [2014] UKUT 0292(TCC) so its approach can hardly be considered settled law yet, even if the view expressed is clearly the Revenue's decided opinion.

3Trust, estates and IHT

3.1 HMRC trusts and estates newsletter

The September HMRC trusts and estates newsletter covers the following:

Finance (No 2) Bill 2015 announced changes:

  • Residence nil rate band.
  • Relevant property trust changes, tackling perceived avoidance through same-day additions to trusts, simplification by categorisation of property taken into account for the ten year charge, amongst other changes and measures dealing with certain anomalies;
  • Legislation relating to late payment interest concerning the procedures for dealing with IHT online;
  • Consultation on changes to non-domiciled rules;
  • DOTAS – the publication of draft regulations extending the scope of the IHT disclosure of tax avoidance scheme hallmark;
  • Deeds of variation: issues on trustees' residence status for Income Tax and CGT purposes. It is confirmed that only where the trustees acting during the period of non-residence are corporate will the foreign income for that period not be assessable for the year.
  • IHT online – the selective trial of the online service for what would otherwise be IHT205 reporting requirements (return of estate information) is to commence from late September to November;
  • the IHT treatment of usufructs: HMRC remains of the view that, generally, a usufruct should be treated as giving rise to a settlement for IHT purposes and will pursue the collection of tax on that basis. Its approach to such situations remains as outlined in its April 2013 newsletter;
  • IHT403 and normal 'out of income' exemption - to treat lifetime gifts made by a deceased person as normal expenditure out of income, information about the deceased's income and expenditure is required on form IHT403 page 6. HMRC has noticed a number of returns are incomplete in this regard;
  • a new version of the 41G(Trust) form has been published;
  • updates to the HMRC Trusts Estates and Settlements manual will be delayed until it has been moved to the website.

3.2 Inheritance tax and downsizing

HMRC has published a technical note, consulting on the Inheritance Tax main residence nil-rate band (RNRB) downsizing proposals that were announced in the Summer Budget. The deadline for responses is 16 October 2015.

Summer Budget 2015 announced that anyone who downsizes or ceases to own a home on or after 8 July 2015 will still be able to use the RNRB when assets of an equivalent value, up to Ł175,000 by 2020/21, are passed on death to direct descendants.

The technical note provides further details of proposals, which will look at the percentage of the RNRB that the person has potentially forgone when he downsizes or ceases to own his main residence and make that same percentage available to the estate on death, to the extent that assets of that value go to descendants.

It also asks whether the details need further clarification and seeks views on the issues and practical difficulties in implementing the proposals. The responses will inform the draft legislation to be included in Finance Bill 2016.

It appears that the proposal, while complicated, was made to counter the fear that the new RNRB would act as a perverse disincentive for empty-nesters to downsize or for those moving into a residential home to sell their property.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Tina Riches
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.