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Bare trusts
Reporting requirements for a bare trust.
My client and her husband have recently moved out of a jointly-owned home which served as their only residence since its acquisition some decades ago.
Upon doing so, my client executed a deed with the effect of gifting the beneficial interest in the property to her four minor grandchildren in equal proportions, whereas the grandparents hold the title as bare trustees.
The only noteworthy clause within the deed is one that denies the right of the trustees to sell the property until all beneficiaries reach 20 years of age.
The property was let to a third party shortly after the clients moving out, and it is expected to generate net letting income of some £15,000 a year going forward.
When considering the compliance obligations arising in this case, I understand that the grandchildren (aged 5 to 17) will be required to register for self assessment and declare the property income in a return to HMRC – although after using their personal allowances a liability to income tax is not expected.
The disposal will be recorded in the clients’ tax returns for this year with a full claim for relief on the disposal of an only or main private residence.
The clients’ other assets are minimal and the estate is understood to be well covered by two nil rate bands for inheritance tax purposes.
Guidance by HMRC (tinyurl.com/wmf8avbm) suggests that a bare trust does not require registration and I am not entirely clear as to additional requirements for the trust.
Do readers agree that, apart from dealing with the affairs of the beneficiaries, no requirements of reporting to HMRC arise in connection with the bare trust?
Query 19,835 – Gifter.
Overseas pension
French pension scheme sums chargeable to income tax?
Following a period of employment in France, our client is due to receive two pensions. Under the plan d’epargne groupe (PEG) and plan d’epargne retraite complementaire (PERCO) schemes, both are to be paid as a lump sum. No tax relief was obtained in France on the contributions to these schemes. The client was employed in France from January 2009 to May 2014.
The benefits all arose from payments made into the schemes during this period of employment and the schemes only became payable after the client’s retirement.
We understand that under ITEPA 2003, s 395B (formerly concession A10) lump sums paid under overseas pension schemes are not charged to income tax if the employee’s overseas service comprises:
- not less than 75% of their total service in that employment; or
- the whole of the last ten years of the service in that employment, where total service exceeds ten years.
As the pension lump sums related solely to the period working abroad, we believe that s 395B will apply in this case.
We have approached HMRC on several occasions but have received no reply. The client is keen to take the lump sums and any assistance would be welcome.
Query 19,836 – Confused.
Made a mistake
Tax implications of a professional penalty.
My client provides professional services. In carrying out work for a client, the rules of their institute were infringed. This was not intentional, but there was obviously a lack of care.
A fine was levied on one of the directors for this infringement and the firm has agreed to pay the penalty – a five figure sum – on their behalf.
Can Taxation readers advise on whether this is deductible in the firm’s accounts and would there be an income tax and National Insurance liability on the employee? For the future, would it make any difference if a contract of employment confirmed that the firm would indemnify its employees?
Query 19,837 – Blunder.
Private tuition
Is VAT registration required for private tuition?
I am worried that I have misled two of my clients on the VAT rules for private tuition. One of them is a partnership of three people and they teach judo. There are no employees and the training can be given on an individual or group basis.
I told them that they did not need to worry about VAT because private tuition in sport is always exempt. Their annual turnover is about £100,000.
The other client is a sole trader who gives motorcycle lessons. I told this client that exemption would apply for private lessons given to school or university students because it would then qualify as school or university-based training but not for adults. As the adult fees are less than £85,000 each year, there is no VAT registration problem.
Could readers clarify the correct position in both cases – do either of these clients need to be registered for VAT?
Query 19,838 – Sheen.
