Trustees and the Common Reporting Standard (CRS)

As if FATCA wasn’t enough, UK trustees will have to get to grips with two new reporting regimes next year – the CRS and the European Directive on Administrative Cooperation, or DAC.  The DAC is how the OECD’s Common Reporting Standard (CRS) will be implemented by the EU. 

Pension death benefits and spousal bypass trusts: time to review

April 2015 saw another radical overhaul of the taxation of UK pensions on death.  Gone is the 55% tax charge on payment of a lump sum death benefit after death, if the pension member either died after their 75th birthday or died pre-75 having already entered into drawdown.  Instead, pension payments from a money purchase pension can now be paid to the member’s nominated beneficiary in the form of either a lump sum, annuity or flexi-access drawdown and no 55% charge is payable at that time.  The nominated beneficiary is taxed at their highest marginal rate of Income Tax in respect of any benefits received.  In addition, the nominated beneficiary can pass on any remaining funds tax free on their death. 

Many defined contribution private pension schemes are set up as trusts so that, on a pension member’s death, the pension trustees decide whom to pay any lump sum death benefit to.  Members are encouraged to sign a letter of nomination – slightly misnamed as the letter is not binding on the pension trustees in any sense.  The rules of certain pension schemes permit the lump sum benefit to be paid to a trust set up by a member in lifetime, often referred to as a spousal bypass trust.  This is also, on its face, a misnomer because it is commonplace for the spouse to be a potential beneficiary of the trust, along with the children, and usually the intention was that the spouse would benefit from it during their lifetime.