Probate – The Risks for Personal Representatives and Executors Reply

Liability of personal representatives for inheritance tax

  • Section 4, Inheritance Tax Act 1984 (“IHTA”) provides that inheritance tax is charged on the death of an individual as if, immediately before the death, the individual had made a transfer of value equal to the value of his estate immediately before his death.
  • Section 200, IHTA provides that, with limited exceptions the deceased’s personal representatives are liable for the inheritance tax arising on the deemed transfer on death.
  • Section 216, IHTA requires the personal representatives to deliver an inheritance tax return and pay any inheritance tax due before the court issues the grant of representation to them.  However, where the estate includes land, the inheritance tax arising in respect of that land can be paid in ten equal annual instalments (s227 IHTA) – save that if the land is sold, any unpaid instalments (together with accrued interest) then become immediately payable.

Harris v HMRC [2018] UKFTT 204 (TC)

1.              Mr Harris was appointed as personal representative of the late Helena McDonald by letters of administration  issued in the High Court on 12 June 2013.

2.              On 28 April 2013, Mr Harris filed IHT400 – an inheritance tax account – with HMRC.  On 16 April 2014, HMRC opened an enquiry into the account and on 7 October 2015 issued an inheritance tax determination on the basis that the value transferred on Helena McDonald’s death was £1,178,196.92 and that the inheritance tax payable was £341,278.76.

HMRC pursued payment of £341,278, Mr Harris said he didn’t have the money because he had distributed the estate mainly to the deceased brother, Mr Harris believed the the beneficiary would pay the tax.

The beneficiary then moved to Barbados and would not respond to Mr Harris.

Mr Harris was unsuccessful in his defence if ignorance of obligations or inability to pay.

He was found personally liable.

Clearance

HMRC can be slow in dealing with IHT400 returns and pressure can be significant from beneficiaries requesting distributions. There is a facility (in IHTA 1984, s239(2) to apply to HMRC for a ‘clearance certificate’ (form IHT30) if the personal representatives  believe that all assets and liabilities have been reported to HMRC. If HMRC gives clearance, it normally discharges taxpayers from further liability.

 

Simple Probate Ltd

Authorised by the Institute of Chartered Accountants in England & Wales to carry out the reserved legal activity of non-contentious probate in England and Wales.

Details of our probate registration are available to be viewed at icaew.com/probate under our registration number C006147902

www.simple-probate.co.uk

Coronavirus Business Strategies Reply

Surprised OMG shocked woman

Number of cases

As of 9am on 11 March 2020, 27,476 people have been tested in the UK, of which 27,020 were confirmed negative and 456 were confirmed as positive. Six patients who tested positive for COVID-19 have died.

Government Support for Businesses

Measures to mitigate the effect of the coronavirus outbreak include:

  • Statutory sick pay for “all those who are advised to self-isolate” even if they have not displayed symptoms
  • Business rates for shops, cinemas, restaurants and music venues in England with a rateable value below £51,000 suspended for a year
  • A £500m “hardship fund” to be given to local authorities in England to help vulnerable people in their areas
  • A “temporary coronavirus business interruption loan scheme” for banks to offer loans of up to £1.2m to support small and medium-sized businesses
  • The government will meet costs for businesses with fewer than 250 employees of providing statutory sick pay to those off work because of coronavirus
  • Plans to make it quicker and easier to get benefits for those on zero hours contracts
  • Benefit claimants who have been advised to stay at home will not have to physically attend job centres

https://www.bbc.co.uk/news/uk-politics-51835306

What if your employees contract the virus?

 According to a government press release issued 3 March 2020, up to one-fifth of employees may be absent from work during peak weeks of the present outbreak. Obviously, you will not want infected employees in the workplace. You will need to review your contracts of employment with affected staff to determine your liability to cover sick pay.

Statutory sick pay (SSP) amounts to £94.25 per week (2019-20) and for staff who qualify, can be paid for a maximum period of 28 weeks. If you have payroll software the management of SSP is normally included.

You may also benefit from contingency planning. How can you reorganise tasks if key staff are incapacitated? Spending a little time to plan for these possibilities may save you head-aches should staff be unable to work.

Have you considered Home Working arrangements?

Is it possible to organise a home working scheme for staff? This will not be feasible for all staff, production workers or retail staff for example, but staff that spend their days in front of a computer screen could be supplied with a laptop and work from home.

Where appropriate, there are a wealth of online meeting services that could be utilised to keep in touch with home workers.

Do you depend on the services of sub-contractors?

If yes, you may want to organise a list of alternative contractors you can call on if needed. This should help to minimise disruption if your present sub-contractors are unable to work.

How secure are your supply lines?

You may want to consider sourcing alternative suppliers if your present supply lines are adversely affected by the flu. China, as we know, supplies a growing number of components many of which find their way into British made goods.

Should you be rethinking your business plans?

It is difficult to gauge the possible spread of the Coronavirus but if epidemic conditions arise there is a real possibility that we may see a downturn in global, and therefore UK, economic activity. This, combined with any Brexit fallout, may indicate that the time is right to rethink your business plans for 2020.

Be prepared.

steve@bicknells.net

Off Payroll Working Rules – April 2020 Changes Reply

The organisation receiving an individual’s services will be responsible for determining whether the off-payroll rules apply, so in other words the fee payer is responsible for tax and NI deductions.

From April 2020 the rules apply to Large and Medium business as well as the Public Sector, the rules are to combat none compliance with IR35.

A client organisation could be

  • a company
  • a limited liability partnership
  • an unregistered company
  • an overseas company

You can check status using the CEST – Check Employment Status for Tax – tool.

The changes don’t apply to Small businesses/organisations employing contractors, to qualify a business or organisation must

  1. Have a turnover below £10.2 million
  2. Balance Sheet worth less than £5.1 million
  3. not more than 50 employees

If the rules apply the Fee Payer is not responsible for

  • Statutory Payments
  • Deducting Student Loan repayments
  • Automatic Enrolment into a pension
  • Holiday Pay

The Client has to demonstrate reasonable care in testing employment status and apply the new rules.

The Fee Payer (Client) is responsible for

  • Calculating deemed direct payment
  • Deducting tax and employee NI
  • Reporting and paying tax and NI including employer contribution
  • Consider if Apprenticeship Levy applies

Client Organisation now need to:

  • Review current contracts and arrangements
  • Establish processes for status decisions
  • Review internal systems for Payroll, HR and on-boarding

The changes don’t affect VAT

steve@bicknells.net

Are you an agent for supplies to your clients? VAT Reply

You’re an agent if you act for, or represent, someone else (your principal) in arranging supplies of goods or services. The supplies that you arrange are made by, or to, the principal you represent.

Principals cannot avoid their liability to account for VAT on their supplies or to pay VAT on their purchases by using an agent.

Persons who carry on a business on their own account sometimes use the words ‘agent’ and ‘agency’ to describe their trading style. For example:

# distributors, sole concessionaires and motor agents usually trade as principals on their own account
# employment agencies and travel agents are not usually agents in all their activities

On the other hand, some people who normally trade as principals, such as solicitors and architects, may occasionally arrange supplies as agents for their clients.

To act as an agent, you must have agreed with your principal to act on their behalf in relation to the particular transaction concerned. This may be a written or oral agreement, or merely inferred from the way you and your principal conduct your business affairs. Whatever form this relationship takes:

# it must always be clearly established between you and your principal, and you must be able to show to HMRC that you’re arranging the transactions for your principal, rather than trading on your own account
# you will not be the owner of any of the goods, or use any of the services which you buy or sell for your principal
# you will not alter the nature or value of any of the supplies made between your principal and third parties

https://www.gov.uk/guidance/vat-guide-notice-700#section22

Supplies made through an undisclosed agent are those where the supplier and purchaser are not known to each other as the agent acts in his own name.

Supplies of goods through an agent acting in his own name are treated as to him and by him and consequently count towards his turnover for VAT registration.

VQOTW: Agency Status and Impact on VAT Turnover

steve@bicknells.net

How can Husband and Wife split Furnished Holiday Let Income? Reply

Normally the rules is that income is split 50/50 but there are some special rules for FHLs

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030

Jointly owned property: husband & wife or civil partners

Husbands and wives or civil partners living together should generally be treated as entitled in equal shares to income from jointly held property.

See:
ICTA88/S282A for years up to 2006-07, and
ITA07/S836 for 2007-08 onwards.

However, this rule will not apply in any of the following instances:
# the income is earned income (or, like furnished holiday lettings, treated as earned income); ICTA88/S282A (4)(a), ITA07/S836 Exception D,
# there is actually a partnership; ICTA88/S282A (4)(b), ITA07/S836 Exception C. In this case the income is divided according to the terms of the partnership agreement,
# both husband and wife, or both civil partners, have signed a declaration under ICTA88/S282B or ITA07/S837 stating their beneficial interests in both the property and the income arising from it. However, a declaration is only valid if their interests in the income and in the property itself correspond.

Further guidance can be found at TSEM9800 onwards. Any problems about joint ownership which cannot be dealt with by reference to the TSEM guidance should be submitted to HMRC Trusts Bootle.

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9820

Property held jointly by married couples or civil partners: The 50/50 rule: Income from furnished holiday lettings

The 50/50 rule does not apply to income arising from a UK property business which consists of, or so far as it includes, the commercial letting of furnished holiday accommodation.

# If a spouse or civil partner carries on the activity alone: that spouse or civil partner is taxable on the income.
# If a spouse or civil partner carries on the activity with others: the income is split for tax purposes in the way the parties have agreed to split the profits amongst themselves.

 

steve@bicknells.net

Do you get relief for unpaid loans? Bad Debts Reply

Lending directly to businesses or via Peer to Peer platforms is becoming very popular, but what happens if the borrower goes bust and can’t repay you?

HS296 Debts and Capital Gains Tax (2019)

https://www.gov.uk/government/publications/debts-and-capital-gains-tax-hs296-self-assessment-helpsheet/hs296-debts-and-capital-gains-tax-2019

Losses on loans to traders

If you make a loan to a trader you may be able to claim an allowable loss if the loan cannot be repaid. The loan must have been used wholly for trade purposes and have become irrecoverable. You cannot claim if the borrower was your spouse or civil partner, either when the loan was made or subsequently.

Example 1
You lend £30,000 to your brother to start a bicycle shop. After trading successfully for a number of years, the business fails. £5,000 of the loan is repaid to you but £25,000 is irrecoverable. You can claim an allowable loss of £25,000. If you claim the relief you’ll be taxable on any amounts of the loan subsequently repaid.

Example 2
Two years after you make the claim your brother is able to repay £10,000. You’re treated as having made a capital gain of £10,000 in the tax year in which the £10,000 is repaid.

Loans that qualify

To qualify for relief the loan must be to a borrower who:

is resident in the UK

uses the money wholly for the purposes of a trade

uses the money to set up a trade, as long as they start trading

A trade includes a profession or vocation, but does not include money lending. If the loan is made to a company, that company can pass the money to another company in the same group to be used in that other company’s trade.

Loans may include credit balances on a director’s loan account but not ordinary trade debts. Exceptionally, trade debts may qualify for relief if there’s a specific agreement to extend the period of credit beyond what’s customary for the trade concerned. But you cannot claim an allowable loss if you’ve claimed the bad debt as a trading expense.

Peer to peer lending

https://www.gov.uk/guidance/peer-to-peer-lending

How peer to peer lending works

Lenders place their money with a peer to peer platform which is then lent to lots of different borrowers as many small loans. Each borrower borrows small amounts from many different lenders to make up the full loan they need. The platform will collect the repayments of interest and capital from each borrower and pass them to the lenders.

Claiming tax relief on unpaid loans

If a peer to peer loan isn’t repaid the lender can set the loss they suffer on the loan against the interest they receive on other peer to peer loans before the income is taxed.

Tax relief is available to peer to peer lenders who:

are liable to UK Income Tax on their peer to peer income

make loans through peer to peer lending platforms that are authorised by the FCA

are the legal lender at the time when its agreed that the loan has gone bad

When relief can be obtained

Tax relief applies when there is no reasonable prospect of the peer to peer loan being repaid, it doesn’t apply to late payment.
The amount of relief available is the peer to peer loan still outstanding from the borrower, less repayments already received.

Relief for bad debts on peer to peer loans can only be set against interest that the lender receives on other peer to peer loans, it cannot be used against any other form of income.

 

steve@bicknells.net

 

Do Directors need to list directorships where they had no income? Self Assessment Returns Reply

This question comes up every year.

“I am a director of lots of companies but only get paid by one company, do I need to list them all?”

Some people make up dummy Payroll Numbers and list directorships, some people list them in the notes, some don’t list them at all, what is the right thing to do?

The answer has to be to follow the HMRC Guidance

 

Click to access SA150_2019.pdf

As you can see its says

received income as a company director’

‘held an office, such as chairperson, secretary or treasurer and received income for that work

If you didn’t receive income you don’t need to report it as it will not affect your tax.

steve@bicknells.net

 

 

When do you pay Capital Gains Tax on Property Sales? Reply

Currently when you sell a residential investment property you pay CGT via self assessment, so if you sell now, that’s in the tax year to 5th April 2020, due for payment by 31st January 2021, but that’s changing very soon.

From 6 April 2020, when a UK resident disposes of UK land, a CGT return will need to be submitted to HMRC within 30 days of the completion of the disposal, and the full liability will be payable within that same 30 day window.

That’s a big change in time scales!

In order to file potentially complex returns within that time scale, investors will need to

  1. Keep full up to date records
  2. An estimate of the UK Taxpayer full income will be needed to assess the rate of CGT to be applied
  3. Details of the tax payers unused CGT annual exemption
  4. Details of any CGT losses unused

These rules will also apply to Trusts

The rules will apply to UK Properties first and its planned to include overseas property a year later.

steve@bicknells.net