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Returns for UK trust of non-resident life tenant.
Our UK resident clients are the two trustees, and also the only beneficiaries of an interest in possession trust set up by their cousin Tony in his will, of which his former wife, Maria, was the life tenant.
Tony was UK domiciled and resident and died in 2010. Maria, who died last month, having permanently left the UK five years ago, was non UK domiciled.
The affairs of the trust are very straightforward; cash settled into it at the outset of some £900,000 was placed in a deposit account, generating modest interest income which was included in Maria’s UK tax returns each year.
The trust ceased on the death of the life-tenant, and we are instructed to assist the trustees with the trust’s IHT affairs. Importantly, however, neither ourselves not the trustees are instructed by the overseas executors of Maria’s estate and in fact, there is no contact with Maria’s representatives.
The trustees are still confident, having known Tony and Maria, that Maria had no UK assets at the time of her death.
We’ve considered the availability of the NRB and established the sum due in IHT in respect of the trust, which the trustees are ready to settle.
Our concern, however, lies at the admin side of things. Being realistic, my clients do not expect Maria’s offshore representatives to submit an IHT400 Return; the representatives are based overseas and do not consider any UK obligations to apply to them, as there are no UK assets. At the same time, it is beyond the trustee’s capacity to step into the affairs of Maria’s estate.
Our intention is to act within the scope of our instructions and only submit returns related to the trust (that is, IHT100, IHT100b and IHT418 as well as the supplementary forms) but we’re unsure whether HMRC can work with this approach and grant closure to the trustees.
What are readers’ experience of this?
Query 20,167 – Tanya.
CGT on disposal of shares.
My client runs a consultancy business through a limited company for which he owns all the shares. He has two teenage children, but is doing ‘forward thinking’ regarding his and their financial affairs and is wondering whether to give them some shares in the business.
I have warned him that if he gives shares now, then any dividends that they yield will be treated as his for income tax purposes; but that this will not be the case once they turn 18.
I am now wondering whether this advice is correct. Am I right in thinking that if he were to give some of his original shares there would not be an income tax issue? My thoughts are that the Arctic Systems decision would apply here in that he would be giving rights to both income and capital. However, he was thinking that a separate class (or classes) of share might be issued so that dividends could be tailored individually to the children’s needs. Would the fact that there might be no entitlement to capital affect matters? Could HMRC argue that this was a settlement or a diversion of income to the children? Would it make any difference if they were working for the business?
Presumably, if there was no capital entitlement this would mitigate any potential CGT issue on his disposal or the issue of shares to them.
Alternatively, because the business is based on my client’s efforts possibly we could argue a low valuation so this might not be too much of a problem if some of the original subscriber shares were given?
I hope Taxation readers can offer some advice.
Query 20,168 – Generous.
Minimising capital gains tax.
Over the years, my client has accumulated shares in a listed company. The value has increased more than he envisaged such that a substantial potential capital gain would arise on disposal. To mitigate this, over the past few years he has transferred tranches of shares to an individual savings account (ISA) where the gain has used his annual exemptions.
The efficiency of this will be reduced by the halving and halving again of the annual exemption this year and next.
Do Taxation readers have any views on whether I should suggest to the client that he worries less about staying within the annual capital gains exemption? Perhaps he should simply transfer more shares each year on the basis that, while he may pay a one-off capital gains tax charge, he will save tax on the dividends that will be paid into the ISA from then on.
Are there any other considerations or factors to be taken into account?
Query 20,169 – Isaac.
Stolen cash: what about VAT?
One of my clients recently discovered that a member of staff has stolen cash from the till (£150/week for three years). This cash related to sales that were never rung into the till, so no VAT has been declared.
What is the best way to deal with this? As the amount of VAT is less than £10,000, can my client make an entry in Box 1 of his next return? Also, 10% of the business sales are zero-rated, so is it reasonable to only account for output tax on £135 per week of suppressed sales ie £150 less 10%?
If we cannot include the tax on our next VAT return – and must disclose the underpayment to HMRC on form VAT652 – what will HMRC do about penalties and interest? Presumably the penalty can be suspended as the underpayment was due to the dishonesty of an employee rather than my client.
Query 20,170 – Cashman.
Queries and replies
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