Inheritance tax and capital gains tax planning for a large estate
This client came to us through another firm of accountants from London. The client had a significant portfolio of investment properties as well as a high value main residence. The client was seeking advice to mitigate capital gains tax on transferring the investment properties to their children and also to reduce their estate for the purposes of inheritance tax at death. Our client had been to a number of accountants and tax advisers previously but had not been able to find a solution. Our tax specialists were able to propose a tax strategy that allowed capital gains tax on transfer of properties to children to be eliminated as well as significantly reduce or eliminate the potential inheritance tax liability. Our firm also helped with complete implementation of the strategy achieving capital gains tax, income tax and inheritance tax savings.
Our client had previously been advised on transferring the investment properties into a limited company to achieve income tax savings. In our view, this approach carries a significant risk that HMRC may seek to charge capital gains tax on the transfer. The advisers rely on the Ramsay case) and hope that HMRC will not challenge. Firstly, the risk of significant capital gains tax becoming payable is there and has become reality in many cases. Even if the case went to the Tax Tribunal and was won by the taxpayer, it does not achieve significant inheritance tax savings or capital gains tax savings on transferring of properties to children. Furthermore, as the property prices keep increasing and if the limited company was to sell one of the investment properties, it would pay capital gains/ corporation tax on the disposal and the shareholders would pay income tax on extracting the profit from the company. This means that transferring properties into limited companies are subject to double taxation.
Our analysis: Our firm specializes in capital gains and inheritance tax planning strategies and we have advised on a number of cases involving a large portfolio of investment properties. There are several strategies available and being marketed by accountants and tax advisers. One needs to be careful before going ahead with a strategy and think through right to the end of the tax implications i.e. capital gains tax, income tax and inheritance tax. We have seen that some clients only aim to mitigate income tax but forget the capital gains or long term inheritance tax planning.
Worldwide Disclosure Facility – Deadline for disclosure 30 September 2018
The Worldwide Disclosure Facility was introduced by HMRC in September 2016 to allow individuals with offshore income to make a declaration without having to suffer heavy penalties or prosecution. This facility has been used by a large number of people in and outside the UK and settlements reached with HMRC. The Worldwide Disclosure Facility will come to end on 30 September 2018 after which HMRC’s new rules under Requirement to Correct will be applicable. The new rules will impose tougher penalties and sanctions on those who have failed to make a declaration by 30 September 2018.
Any foreign nationals living in the UK also need to make a disclosure if they have any offshore income even if that is being kept in the foreign country and not remitted to the UK.
As there is a national campaign going currently in relation to the end of the Worldwide Disclosure Facility, we have been receiving a large number of enquiries from individuals willing to make a last minute disclosure. The initial intention to disclose is fairly simple and can be done online. HMRC will then allow 90 days for the full disclosure and for the tax to be paid. Please contact us on 0207 998 1834 if you would like to discuss making a disclosure.
Man jailed after failing to comply with Code of Practice 9 investigation
Bartley Murphy from Demesne Road, Downpatrick, has been sentenced to prison for 2 years and three months for tax fraud. Mr. Murphy developed and sold several houses between 2007 and 2014 but did not declare his profits to HMRC or paid any tax. He was offered Contractual Disclosure Facility under Code of Practice 9 by HMRC to make a full disclosure of his tax irregularities. However, despite being under a serious tax investigation Mr. Murphy chose to lie and did not make a full disclosure. Read more.
Two men arrested for £1.2 tax fraud
Two men have been arrested on 10th May 2018 in Glasgow for tax fraud and tax evasion of roughly £12m. These arrests came following a prolonged investigation by specialist officers from HMRC. The personal details of those arrested have not been published yet due to the nature of the offences and the fact that investigations are ongoing. Read more.
Galiara  TC 06431
The First Tier Tribunal has decided in favour of the appellant appeal against late filing penalties issued by HMRC. The Tribunal Judge found that HMRC had not been able to provide sufficient evidence that a notice to deliver a tax return had been sent to the tax payer. This case demonstrates that HMRC’s penalty system is not always right and that if appealed correctly, penalties issued wrongly can be cancelled.
VAT Investigation Closed
This was a VAT investigation by HMRC into a retail company. At the outset, the figures proposed by HMRC were significantly higher compared to the information provided by our clients in terms of their sales and profits. Our team of tax investigation specialist met with HMRC and explained the business and demonstrated how the sales estimates were incorrect. We provided the required information and after a long delay, HMRC accepted that there was no VAT or corporation tax due and the case was eventually closed. We are grateful to HMRC officers involved for their cooperation and keeping an open mind in relation to our client’s struggling business.
Our analysis: We have come across a number of situations, where only due to poor communication by the accountants/ tax advisers and tax payers, a simple tax investigation is made far complicated than it needs to be. We have seen some accountants and their clients panic when meeting with HMRC officers and mis-communicating important facts that could be seen positively by HMRC. In our experience, effective communication of the facts and background to HMRC officers is critical in any tax investigation.
Probate valuations and Capital Gains Tax
This case was referred to our firm by another firm of accountants in London. The client had inherited some properties a few years ago that they wanted sell. The issue was that the valuation used for probate purposes was quite low compared to market value at the time of death which meant that the capital gains tax on sale would be significantly higher. Our team of tax specialists took on the case an applied to HMRC’s valuation team to get a correct valuation. HMRC initially objected to our proposals but having provided sufficient supporting evidence comprising property valuations and sold prices, we were able to agree a figure with HMRC that was much closer to our initial proposal. The agreement by HMRC’s valuation office meant that our client’s capital gains tax liability was reduced to a fraction of the initial figure before we took on the case. The client was over the moon with the savings.
Our analysis: At the time the case was referred to us, our clients or their accountants had not even thought about getting a valuation agreed from HMRC’s specialist unit in order to reduce the liability. Due to our long running experience in our dealings with HMRC, this strategy was discussed with the client and they were quite happy with the idea. The tax savings achieved by our client were far higher than their expectations. It is always a good idea to seek advice from a tax specialist as this can bring substantial savings compared to costs.
Post Death Inheritance Tax and Capital Gains Tax Planning
This client was referred to us by an accounting firm in London. The client had a bereavement in the family and the deceased was subject to significant inheritance tax due to the size of the estate. After long discussions and research into the deceased’s family and background, our specialist tax advisers were able to propose various post-death tax planning strategies to enable the tax liability to be completely eliminated. The tax planning structure was based on existing HMRC practices and the legislation which are often overlooked by advisers.
Our analysis: Inheritance tax is the only tax that can be significantly mitigated or even completely eliminated provided specialist tax planning advice has been taken and sufficient time has been allowed. We have come across a number of situations where clients come to us at a very old age and not much can be done other than some basic tax planning. We have also experienced families having to sell properties in order to pay the deceased’s inheritance tax. In some other cases, where we have been approached at a very late stage for inheritance tax advice, some of our clients have had to take very expensive insurance policies to cover the tax bill in case of death within in a certain time frame.
In the above situation, our client was quite lucky as there were some special exemptions that could be used to reduce the inheritance tax liability. These exemptions are not available to all individuals and our recommendation has always been to seek specialist advice at an early stage.
Ahammed (as representative partner of Rangeela Spice)  TC 06318
The First-tier Tribunal has allowed an appeal and cancelled penalties for failing to file a partnership tax return on time. The burden of proof was on HMRC to show the penalty notices has been validly issued. However HMRC had not been able to demonstrate that an actual partnership existed in the relevant tax year.
R & C Commrs (ex parte a taxpayer)  TC 06330
The First-tier Tribunal has allowed HMRCʼs application for a third-party information notice, allowing HMRC to obtain more details and records from a liquidated companyʼs former accountants and tax advisers with the aim to making the companyʼs director at the time personally liable for the Pay As You Earn and National Insurance Contributions owned by the company.