Accountant Error

[george price]

My bank recommended a largish corporate partnership accountant company, even though my wife & I had just 2 buy-to-lets in joint names. We set up the accounts in my wife's so that My wife a low earner (I was higher rtae tax payer) would have 100% of the rental income. HMRC pointed out to the senior partner in charge of my wife's accounts that Form 17 was needed for this, duly approved and backdated as the accountant accepted blame for his oversight no problems. He subsequently retired, his assistant took over and we bought a further 3 buy-to-lets in 2003. At some point, the accountant pointed out that a Form 17 was needed but was not sure if it was applicable and would be accepted. We discussed and we were told that no the original Form 17 did not cover future properties, each property had to have its own Form 17. We instructed him to do what necessary as we quite frankly did not understand and thats what he was being paid for. Anyway, he did not do it. Then he also retired last year, his supervisor, partner, realised the problem and explained it to us. I suggested that as I would be liable for tax due at the higher rate on hte 50% rental income going back to 2004, he had better sort it out with his insurance company or get his company to pay as the error was within his company and had been allowed to continue. This came to light last year August/September, today my wife received her accounts for approval with an urgent communique from him advisng that she had to approve the account prior to 31st January. These accounts have been amended to show rental income split 50-50 with me. Sarky note stating that he is not charging for the extra work involved.
As we invested in these properties to help get extra pension, and I have now been retired 2 years, I am not happy to be facing a huge back tax bill for my accountant's incompetence.
What can I do?

[King_Maker]

Was the relevant Declaration of Trust done for each property?

[george price]

The original Form 17 for the 2 original properties done back in 2001 I assume separate Form 17 for each, (I do not remember or my wife signing we were just happy to let the accountant sort things out) as I am told separate forms are needed. Since then, we have not signed any Form 17 but are informed that a separate declaration of trust must be made for each of the 3 new properties since the original 2, as well as the 1 bought last February.
They cannot be backdated and the delay means I am clocking up more tax liability.
In the meantime, the accountant has now put me in the position of back tax to 2004, I now have to be on his books to sort out the tax. I had to chase him up on this as we are so close to 31st January, and, only just now sent him my details, nice & simple 2 P60s from my small pension providers, State Pension amount, Building society interest £1.21 - My wife's income from 9 hours part time hobby job & buy-to-lets all handled by a large 'Professional' accountancy practice - wasn't life simple!!
all the properties are owned jointly by my wife and myself. The accountsnt has now stated (2 days ago) that we will need to sever our joint tenancy on the 4 new properties leaving us as tenants in common. I don't know what all this means and have asked him to clarify , does he mean we have to change our title deeds? but not had a response.

[King_Maker]

It is still entirely clear what your exact position is.

Briefly :

Assuming you bought all the BTL properties with your wife in joint (legal) names, two things need to be done for the rental profit to be divided UNEQUALLY (any ratio from 1:99 to 99:1).

Firstly (England and Wales), any Joint Tenancy must be altered to a Tenancy in Common.

Secondly, for spouses and civil partners, Form 17 must be filed with HMRC within 60 days. No backdating is allowed - and may well be fraud. Form 17 must reflect the actual % ownership (if not 50:50).

IMHO, any large firm of accountants should know this. Failure to implement your wishes re splitting income is, prima facie, negligent. I assume the firm has/will compensate you for any tax, interest and penalties?

Eleven years seems a very long time to get this correct?

[george price]

I did not know what tenancy in common was still do not fully understand it. The properties are owned jointly, does this mean we have to change the title deeds to reflect tenancy in common? prior to getting Form 17s done for the remaining 4 properties? there was none of this with the original 2 properties in 2001, at least if so, we were not aware of it.
I have googled tenancy in common and am getting an idea of it. Interestingly, the info states that ownership of the properties can be 100 + persons, accountant had previously advised me that ownership is restricted to 3 persons maximum. This was when i was looking at ways to reduce IHT by gifting part/portion of the properties to my 3 children.
Concerning the Accountants willingness to compensate me for any tax, interest and penalties, this is the big unanswered question raised last year - he said there would have to be a board meeting to discuss - I have not been advised of outcome.. on being chased at the beginning of year, he said the insurance wanted me to become his client otherwise they could not look at any claim - this I did signing his declaration form 8th January. I chased again on 18th January getting concerned about 31st January deadline - he then same day sent me Lyn's completed accounts for approval showing 50% rental income which reluctantly she signed with adendum complaint. I then chased 20th January about my accounts - advised they would need my P60s for the 2 small pensions any interest dividends etc or other income... easilly answered by email return as I have very little having put everything in Lyn's name, but complained again that everything is left to last minute and what would have happened if I had not asked and chased up - this would be my negligence?

[King_Maker]

There is no need to change the Title Deeds, but then you will need to have a Declaration of Trust. This would apply to all the joint owned properties.

Form 17 still needs completing and filing with HMRC within 60 days to change the automatic 50:50 split.

There is a maximum of 4 persons who can hold the LEGAL title - but not the beneficial/equitable title.

What spit did/do you want? I assume 1:99 in favour of your wife?

If so, why do the latest accounts (for the year ended 5 April 2011?) still reflect 50:50?

[george price]

Thank you for clarifying the declaration of trust. Re the split, you are correct we favour 1:99 in favour of my wife, we have always allocated my wife the whole rental income, the Accountant has insisted we do 50/50 for 2010/2011 accounts because the form 17 was not completed, today he has estimated nearly £4,000 tax due from me, £3,000 of which to be paid by 31st January. On the other hand, there will be a small tax refund for my wife.Furthermore, he now wants me to produce my P60s etc for every year going back to 2003/4.

[Generix]

Thank you for clarifying the declaration of trust. Re the split, you are correct we favour 1:99 in favour of my wife, we have always allocated my wife the whole rental income, the Accountant has insisted we do 50/50 for 2010/2011 accounts because the form 17 was not completed, today he has estimated nearly £4,000 tax due from me, £3,000 of which to be paid by 31st January. On the other hand, there will be a small tax refund for my wife.Furthermore, he now wants me to produce my P60s etc for every year going back to 2003/4.

This may be a bit of a generalisation but in my experience, the bigger the accountancy firm the less interested they are in 'smaller' clients, hence things like this get missed.

Better to change tax advisers/accountants in future and use someone local for something which is fairly small scale and simple such as this where the devil is in the detail.