ICAS responds to consultations on the Fifth Money Laundering Directive and CGT Private Residence Relief
Susan Cattell outlines the ICAS responses to two recent consultations.
Transposition of the Fifth Money Laundering Directive
This was a consultation run by HM Treasury, seeking views on transposing the EU Fifth Money Laundering Directive into UK Law. The UK is currently expecting to implement the directive due to the planned Brexit implementation period.
The ICAS response covered the proposals in Chapter 9 of the consultation for the expansion of the Trust Registration Service (TRS) to cover all express trusts. Currently, only trusts with tax consequences are required to register; there are likely to be considerable difficulties in making trusts without tax consequences aware of the need to register.
In addition to expanding the requirement to register, the directive also requires that the UK introduce a mechanism for releasing information about trusts to anyone with a ‘legitimate interest’. Currently, HMRC only shares data with law enforcement agencies.
ICAS representatives attended stakeholder meetings with HM Treasury and HMRC to discuss the proposals relating to express trusts.
Key points from the ICAS response
- It is important that the definition of express trusts is as narrowly drawn as possible - to meet the requirements of the directive but no more. Detailed guidance will be essential to provide clarity on what is, or is not, included in the definition.
- Trusts which are express trusts under English or Scottish law, but which would not be express trusts elsewhere in the EU should be excluded from the definition: otherwise application of the directive will be more onerous in the UK than in other member states.
- The data required for trusts without tax consequences should also be kept to the minimum required by the directive, to minimise compliance costs. Some additional data may be required where there are tax consequences but providing the full range of information required for the existing version of TRS has proved to be onerous for trustees and agents. A reduction in the amount of information required would therefore be helpful.
- Protection against inappropriate release of data should be provided both by using an appropriate definition of legitimate interest (with suitable exemptions) and by ensuring that the process for releasing data includes scrutiny by an independent tribunal (either through pre-authorisation of requests or through a right of appeal).
- There have been serious problems with the existing TRS system from its launch. Many of these are ongoing, for example, it remains impossible to access data which has been submitted, or to make any amendments to that data. It is vital that a fully functioning, user friendly TRS is available by April 2020, in time for the significant expansion of the registration requirements.
CGT Private Residence Relief: changes to the ancillary reliefs
The government had already announced (in Budget 2018) the two main changes outlined in this HMRC and HM Treasury consultation:
- The reduction of the final period exemption from 18 months to 9 months, although the special rules that give those with a disability, and those in care, an exemption of 36 months will not change.
- The reform of lettings relief so that it only applies where an owner is in shared occupancy with a tenant.
It seems unlikely that these decisions will be reversed but there may be some scope for amending the details.
The consultation also asked for views on legislating two extra-statutory concessions, including ESC D49, and some amendments to the treatment of transfers between spouses and civil partners.
Key points from the ICAS response
- The length of time it takes to sell a house varies according to market conditions. It would therefore make sense to provide that the length of the final period exemption should be subject to periodic review – and that it could easily be amended by statutory instrument – to avoid it contributing to a problematic stagnation of the property market in future.
- The shorter final period exemption could cause problems for couples divorcing or dissolving a civil partnership. The response suggested a possible solution.
- Consideration should be given to allowing some relief in respect of the letting of a property before 6 April 2020 which would have qualified under the current rules.
- In legislating ESC D49 the response suggested that some amendments should be incorporated, to reflect the decision in a recent First Tier Tribunal case (Mr George McHugh & Mrs Mary McHugh v HMRC) and to address the problem illustrated by another recent Upper Tier Tribunal case (HMRC v Desmond Higgins).
Let us know what you think
The ICAS tax team welcomes members’ views on current tax consultations to assist in preparing ICAS responses. If you have any comments let us know.
Details of current consultations on tax issues can be found here:
