What you need to remember for Monday 6 October 2008

Monday 29 September 2008

Why is Monday 6 October 2008 an important date for self assessment and for trusts?

There are two things, which need to be considered for 6 October 2008. One item relates to an income and gains notification to HM Revenue and Customs (HMRC), and the second relates to the end of transitional rules for certain trusts, which will mean that a large number of trusts are now treated as relevant property and subject to various inheritance tax charges.

What notifications need to be made to HMRC by 6 October 2008?

Taxpayers need to notify HMRC by 5 October (as 5 October falls on a Sunday this year the deadline is moved to the next working day) following the end of the tax year (being 5 April 2008) of any income and gains arising in that tax year. Notifications are not required if they have already been issued with a self assessment tax return by HMRC, or the tax liability on any income arising has already been fully satisfied by a deduction at source.

What would happen if the taxpayer failed to notify HMRC of any income and gains before 6 October 2008?

The individual will be liable to a penalty not exceeding the amount of tax, which becomes due in respect of the year ended 5 April 2008, and which is not paid on or before 31 January 2009.

What action can be taken before 6 October 2008 to ensure that an Interest In Possession trust is not treated as relevant property?

Finance Act 2006 introduced sweeping changes to the taxation of trusts. The provisions resulted in more trusts (eg Interest In Possession (IIP) Trusts) falling into the relevant property regime, thereby being liable for IHT on ten yearly anniversaries and exit charges, which had previously only applied to discretionary trusts.

The legislation introduced new types of statutory trust, to include Immediate Post-Death Interest trusts (IPDIs) and Transitional Serial Interest trusts (TSIs), and dramatically redefined Accumulation and Maintenance trusts.

Transitional TSI trust provisions apply until 6 October 2008. During this transitional phase, a TSI can be created where a new life tenant is appointed, either during the lifetime or on the death of certain existing life interest trusts. One of the advantages of creating a TSI is that the new life tenant's interest is not relevant property. For example, the trustees may vary the terms of an old existing interest in possession trust for Fred, in favour of his daughter Fiona. If this is done by 5 October at the latest, then Fiona's interest will also escape the relevant property regime. However if Fiona's interest is varied at any time thereafter, the trust will then convert to relevant property.

Francesca Lagerberg, National Tax Partner at Grant Thornton says: "The Finance Act 2006 has substantially change the taxation of trusts but there is an opportunity here to ensure that IIPs can continue to enjoy the benefits of not being treated as relevant property and prevent being subject to the ten yearly anniversary and exit charges."

This is a specialist area, if you believe you are in a position affected by the above rules and are interested in reviewing your options please contact us as soon as possible to enable us to take any relevant action prior to the 6 October 2008 deadline.

Please click here to contact us if you would like further advice on any of the above.