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Should I advise my client to declare income?
My client and her brother are entitled to half shares in the residue of the estate of their late mother, who died in October 2020.
The solicitors who acted as executors have only recently made a final distribution, and have provided what I regard as inadequate estate accounts. In particular, they have apparently received dividend income, as well as interest income of more than £500 in one year, but do not appear to have submitted income tax returns or paid any income tax.
What do I do about that? I could declare the income on my client’s tax return (presumably for the year in which it is received) with no tax credit, and the ‘right tax’ would eventually be paid – but is that the correct answer?
Also, the solicitors have credited my client with £900 of interest in respect of the money they held on their client account for three years. How is that supposed to be treated?
Query 20,439 – Appalled accountant.
Should pension scheme be set up as a discretionary trust?
In the autumn Budget 2024, the chancellor of the exchequer announced that funds in pension schemes will form part of a person’ s estate for inheritance tax purposes.
To be completely transparent, I had always thought that the reason why pension schemes are set up as discretionary trusts is so that they fell outside somebody’s estate.
If those funds are now to be included in a person’s estate, will there be any point in continuing to structure them as discretionary funds?
Will it now be possible to say exactly who you want the fund to go to, or are there other reasons why pensions funds will still need to be set up on a discretionary basis?
Query 20,440 – Old Fogey.
How is accrued interest treated for IHT?
I am acting as executor, in my personal capacity, for an elderly aunt who died recently.
Among her assets is a time deposit that will mature in February 2025. I vaguely recall something about this situation when I studied IHT and taxation of estates years ago, but I would appreciate being reminded.
How is the interest accrued up to death treated for IHT and for income tax? I presume that none of it is charged to income tax on the deceased, but is it subject to a double charge – once to IHT as part of the value of the estate, and once to income tax when it is received? I think that would just be harsh.
Query 20,441 – Puzzled exec.
How much pre-registration input tax can be claimed?
I have read John O’Hare’s recent article in Taxation about pre-registration input tax for private schools (‘Could do better’, 7 November 2024) but I am confused by HMRC’s published guidance on this subject (tinyurl.com/5y6466a3).
The specific item I need to deal with relates to desks and chairs purchased by my private school client in 2023 for their classrooms:
- At the time of purchase, the desks and chairs were wholly relevant to exempt supplies, ie school fees are exempt until 31 December 2024.
- The furniture will be used for taxable supplies after this date because tuition fees will be standard rated. So, based on HMRC’s guidance to review the input tax claim over five years, this means my client can claim 60% of the VAT on their first return ie, three years out of five.
- However, some supplies linked to education will still be exempt, including stationery. So, if the students work at their desks with VAT exempt stationery bought from the school, does this mean that the input tax on the desks is residual for partial exemption purposes, ie linked to both taxable and exempt supplies?
- My understanding is that pre-registration input tax cannot be claimed on any expenses where there is some link to exempt activities, ie residual or exempt input tax.
Can readers clarify this issue for me, please?
Query 20,442 – Brodie.
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