Should a lay trustee whose co-trustee was the Executor and Trust Company of a solicitor’s firm be entitled to argue that he had a reasonable excuse for the late payment of capital gains tax (CGT) on a share sale because HMRC had not drawn the payment on account feature to his attention?

The Emergency Budget produced a modest 45 Budget notes to kick-start the Chancellor’s five year plan to rebuild the British economy. Somewhere in the mix are the 6 issues of interest to private client practitioners which are the subject of this summary.

The law relating to mistake and the rule in Hastings-Bass, where trustees exercise their powers in a misapprehension as to the effect of the exercise of those powers, have developed along different lines. This is another case in which the Court was asked to apply the rule to protect the beneficiaries where the trustees had exercised their powers incorrectly because the resulting tax consequences were not as they had anticipated.

Managing risk is one of the hot summer topics as we enter the season for professional indemnity insurance renewal. Identifying the risk is the first step to ensuring that risk is managed. In the complex world of tax it surely makes sense to employ tools provided by HMRC which address the many mistakes they see, the impact of which may result in penalties and loss of reputation.

Why not consider the relevant toolkit for you and see if it can provide guidance as part of your firm’s risk management of tax advice and compliance?

When considering the availability of Agricultural Property Relief (APR) for Inheritance Tax (IHT) we must remember the provisions of s.117 IHTA 1984. The property must have been either:

• Occupied by the transferor for the purposes of agriculture throughout the period of 2 years prior to the date of the transfer; or

• Owned by the transferor and occupied by him or someone else for the purposes of agriculture throughout the period of 7 years prior to the date of the transfer

Where a farmer through Illness or old age is not in occupation then it would seem that there is no actual relief. In practice HMRC will allow 3 months absence but there must be an intention to return and it must be possible to re-occupy the property. This little case provides some useful clarification where the senior partner in a farming partnership had moved into a care home but the ‘bungalow was still used to accommodate the diminishing needs of the senior partner’.

The recent case of Fryer v HMRC [2010] UK FTT 87 is a reminder that cases brought before the new First Tier Tax Tribunal are limited to matters within their statutory authority – namely, they are to consider the statutory provisions as they are and not as the parties to the proceedings might want them to be on the basis of fairness. It follows that where a person is found to fall within a statutory provision, it must be applied.

In this case, the provisions in question were s.3 IHTA 1984 (relating to what is a transfer of value) and s.10 IHTA 1984 (providing for dispositions not intended to confer a gratuitous benefit).

What should you advise a client to do? The Government has just announced in the Budget 2010 that the Nil Rate Band (NRB) is frozen at £325,000 until 2014/15. The Conservatives announced some time ago that they intend to raise the NRB threshold to £1 million whilst retaining the transferable NRB (TNRB). Even with the current budget deficit the Conservatives maintain they will adhere to this policy, it might just be delayed.

Meanwhile, we have the Government’s statistics for the amount of money in millions of pounds generated by the various taxes both direct and indirect which shows just how small a contribution to the fiscal pot IHT makes. For 2009/10 it represented 2,251 million which sounds a lot until you hear that Beer duties bring in 3,151 million and it is likely that there are more HMRC staff administering IHT than Beer duty!

If the government’s coffers are definitely half full and considerable public sector retrenchment is ahead whichever political party gains power after the election one does have to wonder why we continue with IHT when a mere 2% on income tax would bring in more at the current time or even 3.5% on VAT.

It is this political uncertainty which is surely keeping clients from undertaking tax planning at the current time coupled with their need to retain as much capital as possible to fund their future in a low interest world. How do we suggest clients should approach Will drafting and estate planning against this backdrop?

Mr Gaines-Cooper’s appeal against assessment to £30 million of back taxes was heard with two other appeals regarding the same issue; namely, the apparent change in HMRC’s interpretation of the law and their use of the IR20 leaflet.

Mr Gaines-Cooper and his co-appellants contended that HMRC had misapplied and misconstrued paragraphs 2.7-2.9 of IR20 which deals with “Leaving the UK permanently or indefinitely”.

Those paragraphs say:

Well it’s come and gone and we are none the wiser. The predictions that the Pre Budget Report on the 9 December 2009 would introduce draconian Capital Gains Tax (CGT) anti-avoidance rules in advance of an increase in the rate of CGT in the Budget in March did not happen; the abolition of Business Property Relief did not happen and where were the spending cuts? Certainly they were not announced in detail in the PBR.

Instead we got the following:

I was recently asked to advise a farmer on the prospect of retaining APR/BPR for IHT in the event of him agreeing to a Wind Turbine or two on his land. It certainly proved to be an interesting question - no answer, sadly, was to be found blowing in the wind on the Isle of Wight!

The Finance Bill received Royal Assent on 21 July 2009 and as a result the new s.6 and Schedule 2 to the Finance Act 2009 brings in the provisions for an additional rate of income tax and an additional rate for dividends. The consequential amendments include increases to the trust rate and the dividend trust rate. By aligning the trust rate and the dividend trust rate with the highest rates of personal taxation this means that the trust rate increases to 50% from 40% with effect from 6 April 2010 and the dividend trust rate increases from 32.5% to 42.5%.

For events on or after 1 April 2009 the liable person(s) may be charged penalties if they do not take reasonable care in preparing their IHT account or excepted estate return. Have you updated your practice and procedures to avoid penalties?

The so-called simplification of Will drafting by the introduction of the Transferable Nil Rate Band (TNRB) has complicated matters for some clients. Where the clients have been married (or been in a civil partnership) before particular care is required in assessing the use or transferability of the previous spouse/CP unused nil rate band. The Will drafter should focus on where any unused nil rate band may be wasted and whether the client appreciates the options open to him. For a simple checklist to consider in such circumstances please click below.

CHECKLIST - download pdf here

© Gill Steel, LawSkills Ltd. 2009

Are special tax reliefs for furnished holiday lettings likely to become a thing of the past from 6 April 2010 in the light of the release on Budget Day of HMRC’s technical note sounding the demise of the legislative code for income tax and CGT contained in Income Tax (Trading & Other Income) Act 2005?

HM Revenue & Customs (HMRC) are introducing a series of toolkits for agents to provide guidance on risk management (compliance from HMRC’s perspective), and to set out how agents can reduce the likelihood of mistakes occurring in returns.

HMRC believe that using the toolkits will help agents to ensure the completeness and accuracy of returns and thus reduce the potential risk of an HMRC enquiry or inspection.

In a Budget which has been criticised on all sides the Chancellor Alistair Darling has for once not taken the opportunity to alter much which affects the Wills, Probate and Trust practitioner who does not deal with offshore matters. The three headline items are:

• the significant increase in income tax rates on trusts with no interest in possession
• the expansion of the geographic area to which Agricultural Property Relief applies and
• the bringing of IHT into line with the new compliance regime

HMRC are replacing the IHT200 with IHT400 with effect from 9 June 2009 but the new form is already available on the HMRC website. The basic concept of the IHT account is unchanged – it will continue to constitute a core form with various schedules.