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Passing on
Trust tax return compliance issues.
My wealthy client died in March 2015. Her will left income for life to her husband and thereafter the residue to nephew and niece. Estate tax returns were prepared for the period ended 5 April 2015 and year ended 5 April 2016, the solicitor having advised that the estate administration ended on 5 April 2016.
The will trust commenced on 6 April 2016 and a trust tax return was prepared for the year ended 5 April 2017.
The husband died on 22 September 2017 and a trust tax return was prepared for the period 6 April 2017 to 22 September 2017. Trust tax liabilities have been paid based thereon and the husband’s estate has declared his income from the trust to 22 September 2017 based on the R185 provided.
It has not yet been possible to transfer the trust’s assets consisting of let properties and an investment portfolio to the residual beneficiaries. Property income from 23 September 2017 is still being received in the trust bank account and property expenses continue to be paid. Stocks held in the investment portfolio at 22 September 2017 were transferred at market value to a new portfolio account commencing 23 September 2017. Capital losses have been incurred in the new portfolio in the period 23 September 2017 to 5 April 2018 because stocks had to be sold to pay inheritance tax liabilities. We understand the trust may now be a bare trust for the residual beneficiaries.
Can readers advise on how to declare the income and capital losses from 23 September 2017 to 5 April 2018 to HMRC? Do we need to amend the 2017-18 trust tax return to cover the whole period from 6 April 2017 to 5 April 2018 (in other words, using the same UTR)? Presumably a trust tax return will also be required for the year ending 5 April 2019?
Query 19,339– Too Trusty.
Near retirement
Tax treatment of a Spanish pension in the UK.
My client is a Spanish citizen living and working in the UK, who has just reached the age of 60 and has five years to decide whether to take his Spanish pension out as a lump sum or as an annuity.
He received no tax deduction in Spain where he spent most of his time when he made much of the contributions, and under Spanish law he pays no tax there when he takes the money out.
What is the British tax position? If he is still resident when he withdraws the money, does he have to pay tax on the full withdrawal despite not having had a deduction when he paid it in? Or can it be treated in the same way as in investment bond and he gets taxed as income only on the surplus?
Finally, is there anything else that Taxation readers can advise me about his position?
I look forward to replies.
Query 19,340– Wellington.
Car trouble
VAT treatment of a vehicle purchase agreement.
A client has acquired a car under a hire purchase or personal contract purchase (PCP) contract with an optional final ‘balloon’ settlement payment included. He states that when taking out the agreement he was assured that VAT is included in the monthly instalments, but he cannot obtain any documentation regarding this. It appears that under recent HMRC guidance the supplier makes the decision as to whether the agreement is a purchase agreement or a leasing agreement.
Can readers clarify the following points?
- If instalments do include VAT, should the finance company be issuing monthly VAT invoices (presumably only 50% VAT is reclaimable), and also a VAT invoice for the deposit of £5,000 paid?
- If VAT invoices cannot be obtained, should our client assume this is not a leasing agreement, or can they reclaim VAT on the basis of advice given when taking out the agreement?
- Does the accounting treatment of these agreements follow the VAT position, or is there a different treatment in respect of capitalising assets and capital allowances claims?
Advice from Taxation readers would be much appreciated.
Query 19,341– Driver.
Loan benefit
Reporting status of a loan from a non-resident trust.
A non-resident trust was set up in Jersey by a non-resident UK domiciliary.
The settlor is a long-term resident of South Africa and the trust was established primarily for South African tax purposes with the settlor as a beneficiary. The settlor’s adult son is also a beneficiary and was resident in the UK at the time the trust was created, so a claim to the motive defence has been taken to be a non-starter.
The trust received funds as loans from a British Virgin Islands (BVI) company which, in turn, had received its money by issuing shares at a substantial premium to the settlor who was the sole owner. The trust was terminated in 2017-18 and all its assets, including an interest-free loan to the son, were used to repay the trust’s loans to the BVI company.
The BVI company then redeemed the shares the settlor had bought by using all its assets to do so. The result was that the settlor then owned the loan from his son, which he fairly promptly forgave.
The son has reported the benefit of the interest-free loan as income since it was made, but I am unclear as to whether he should also report the writing-off of the loan itself as a distribution (there is sufficient relevant income to frank such a distribution).
Guidance from Taxation readers would be very welcome.
Query 19,342– Frank.
