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Is trust liable to ten-year and exit charges?
I am dealing with a trust was set up during 2011 (with £10 initial monies introduced).
The key wording as to the term ‘beneficiaries’ is as follows: ‘Now this deed witnesses that the trustees shall hold the trust property on trust for such of the beneficiaries in section A below in such shares and in such manner as the trustees shall appoint by deed revocable or irrevocable and executed at any time within 125 years from the date of this settlement and in default of appointment or so far as no such appointment shall extend for the benefit of those named in section B below:
Section A – Potential beneficiaries:
- my son – Joe Smith;
- my civil partner – Jane Jones;
- the issue and remoter issue of my son Joe Smith;
- plus any other persons I during my lifetime later nominate in writing to the trustees and after my death other persons nominated by the trustees with the exception of myself. The settlor (Mary Williams).
Section B – Current beneficiaries:
- my civil partner Jane Jones.’
Is the trust liable to the ten-year and exit charges? I have obtained advice from other advisers but these conflict (one of them suggested that with a surviving spouse holding the interest in possession, the trust would be exempt from inheritance tax and therefore there are no tax charges to pay on the trust).
If liable, there is a substantial liability to the ten-year charge.
Any help here will be appreciated.
Query 20,163 – Trusted adviser.
Selling family home at undervalue.
My client inherited a half share of his mother’s house when she died some years ago. He agreed with his sister that she could continue to live in it as long as she wanted; she would only have to pay him out when she sold the house or died.
Now he needs some money to pay a divorce settlement, so the sister has agreed to advance him £50,000 of the £104,000 probate value, with the balance to follow later in accordance with the original agreement.
My concern is that HMRC will regard him as selling the asset (half the house) at an undervalue (what it was worth then rather than what it is worth now) and he will be liable for capital gains tax.
Is there any way of justifying the payment being based on the original probate value rather than the current value, or any relief that can be claimed? I doubt if the original agreement between the siblings was set out in writing.
Readers’ views would be very helpful.
Query 20,164 – Brotherly love.
HMRC position with regard to inaccurate data.
I have a new client who has been renting out a small residential property for just over 20 years – the rent was approximately £3,000 a year.
He hasn’t filled in any tax returns during this time and he has been a higher rate tax payer the entire time. He has no knowledge of tax and mistakenly believed that because the rent was about the same as his mortgage, he didn’t have to pay anything. The interest on the mortgage was around £1,000 a year.
I want to bring his tax affairs up to date with the smallest amount of tax and penalties possible but trying to get the information is very difficult – his records only go back a few years.
My understanding is that HMRC will be relatively lenient with an unprompted declaration but I have never dealt with anything that goes back this far – will HMRC take his (somewhat vague) information when it comes to dates that he began to let the property?
Is it possible to restrict the number of years that HMRC will go back?
Query 20,165 – Friend indeed.
Are educational services for football clubs VAT exempt?
My client trades as a limited company and has never registered for VAT, on the basis that her services are mainly exempt and the non-exempt sales are less than the VAT registration threshold.
Her clients are professional football clubs, and her services are to train and help young academy players to pass their GCSE and A Level school exams.
She also teaches English to young players from overseas where English is not their first language.
Her fees are apparently partly funded by government grants being paid to the football club and she mainly invoices the football clubs but also the separate academies set up by some of the bigger clubs. Her letter of engagement is with the club or the academy and never with the players.
My question is simple: is she correct that her services qualify as educational supplies that are exempt from VAT?
Query 20,166 – Educating Rita.
Queries and replies
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