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Does Hall case apply?
I was interested in the recent Taxation article on will drafting (tinyurl.com/5n72ad53) as I am dealing with a situation similar to the Hall case discussed in the article. I am advising on a situation where one sibling (out of four) was granted the ability to occupy a smallholding for life, subject to keeping the property in good repair, etc. This property was left via will in 1989. The four siblings each took an equal share upon the event of the sale of the property.
I was asked to take on the case after the sale of property because the siblings eventually recognised that there might be a tax liability. I advised on the CGT liability but also pointed out that due to the surrender of the life interest, there had also been a PET. This is likely to fail as the life tenant is in his 90s.
I have recently received further correspondence dating back to 1999 which shows the beneficiaries paying the expenses and part of the IHT as there was little cash in the estate. The solicitor at the time advised that the property could be sold but the administrative expenses could be borne by the ultimate beneficiaries.
It occurs to me that the reasoning in the Hall case could apply here. It appears that the ultimate beneficiaries did take on these costs and allowed their brother to reside in the property rather than sell it straight away.
Do readers believe that there is a realistic chance of persuading HMRC that the Hall decision should apply? There is no formal document setting out the agreement for the individual to reside in the property, but there is correspondence with the solicitor discussing the costs and evidence that the brother did live in the property.
Also, will the principal private residence position of the property be impacted if an IIP was not in place?
Query 20,147 – Rohan.
Recovering PAYE overpayment.
We recently submitted a voluntary disclosure of offshore interest income on behalf of a UK resident client. Until last year, her only income of UK employment was covered by PAYE. She was unaware of any reporting obligations to HMRC on overseas income and did not previously file a tax return.
It is agreed that the 12-year assessment period applies to the case, though overseas income only commenced in 2015-16.
When preparing tax computations to establish tax due, a liability of some £3,000 was arrived at for 2016-17 to 2019-20. However, our calculation shows an overpayment of £4,000 for 2015-16 due to what appears excessive PAYE deductions by the employer.
The point of uncertainty is whether the standard four-year limit for overpayment relief claims applies here – in which case we see no basis for recovery of the PAYE overpayment; or can it be argued that the overpayment of tax via PAYE in 2015-16 ought to have resulted in a credit balance on our client’s ‘account’ with HMRC – to be used against future liabilities?
We think that the latter argument differs from a standard overpayment relief claim (this is not a case where it is now found that previously returned tax liabilities were excessive giving rise to an overpayment claim). Rather, we feel that a better analogy would be that of a client who paid HMRC an amount in excess of their returned tax liability, resulting in an account credit available for repayment.
What do readers think?
Query 20,148 – Clavelin.
Capital allowance choice.
I’ve been looking at the new full expensing rules for one of my larger corporate clients.
They are planning to spend £500,000 later this year on new item of plant. This will qualify for 100% first-year allowance (FYA) under full expensing and also the 100% annual investment allowance.
So the relief will be the same under either route. But as I understand it, when the plant is sold, there is a difference.
Under full expensing the disposal value would be brought directly into charge whereas under the annual investment allowance (AIA) the disposal will be deducted from the general pool and so might (depending on the values) not trigger a balancing charge. Is that correct?
If so, is there ever any reason to claim the FYA under full expensing or should , if both reliefs apply, the AIA always be claimed in preference?
If that is the case how do you indicate in the computation which allowance is being claimed?
Query 20,149 – Curious.
Is credit note for building work valid?
My client is a builder who carried out a large extension project for a private customer at their mansion on the south coast. The job value was £130,000 plus VAT and the customer paid the full amount. However, an architect acting for the owner was very critical of my client’s work and the price charged for extras, so my client issued a credit note for £30,000 plus VAT. However, my client will repay the £36,000 credit to the property owner over the next three years, ie £1,000 a month.
My question relates to VAT. My client reduced his output tax by £6,000 on the return that included the date of the credit note but was this correct? Should he have reduced it by £500 each VAT quarter, ie treating the repayments as inclusive of 20% VAT? If my client has got it wrong, should he notify HMRC of an error correction problem?
Query 20,150 – The Juggler.
Queries and replies
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