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TaxationWeb by Matthew Hutton, MA, CTA (Fellow), AIIT, TEP Matthew Hutton MA, CTA (fellow), AIIT, TEP author of Capital Tax Review, considers private residence relief on the sale of gardens or grounds and recent consultation on the intestacy rules.Garden or Grounds: Sales ‘Off’ContextThere is a traditional problem with getting relief under TCGA 1992 s 223 where only part of the grounds are sold and the area concerned exceeds the ‘permitted area’ of 0.5 of a hectare. This is the HMRC argument that, if a taxpayer is now selling part of the garden or grounds, that area larger than 0.5 of a hectare cannot be required for the ‘reasonable enjoyment of the dwelling-house’ – as demanded by s 222(3).HMRC’s Capital Gains Manual offers two general exceptions to this difficultyFirst, it is made clear at paras CG64832 – 64834 that the inference may be displaced where the owner of the land made the disposal to a member of his family and was prepared to tolerate some effect on his ability to use and enjoy his own residence. Second, HMRC accept that the inference may not be correct where it is financial necessity which has forced the owner to sell land which would otherwise appear to be part of the most suitable area of garden or grounds to be included within the permitted area (as provided by s 222(4)).(CLT Conference ‘Capital Tax Planning for the Family Home’ 17 May 2005, lecture by Samantha O’Sullivan, included in my Meeting Points article for Taxation 16 June 2005) ApplicationThe two relaxations offered by the Manual to the strict test seem curious, applying as they do a subjective rather (as is clearly understood) an objective character to the statutory test. However, never ‘look a gift horse in the mouth’ and so by all means take advantage of the offer where appropriate.However, another more alarming tendency recently observed within HMRC is their self-adopted ability to vary the extent of the garden or grounds which can be taken as going with a particular dwelling-house according to the extent of the property that is occupied. On this basis, therefore, a bedridden octogenarian who fails to use much of her property would be entitled to less relieved garden or grounds than a fully fit active occupier might enjoy. Curious, and, again, based on a subjective interpretation – so watch out! Deceased Estates: Review of the Statutory LegacyContextThe intestacy rules applying in England and Wales are found in the Administration of Estates Act 1925 s46 (with different provisions applying in Scotland).Where there is a surviving spouse: (a) if the deceased leaves no children, parents, brothers or sisters or their issue, the spouse takes the whole of the estate; (b) if there are children surviving, the spouse will take personal chattels, a statutory legacy of £125,000 and a life interest in half of the residue (if any). The children (or their issue) share the other half of the residue and also take the surviving spouse’s share on his or her death; and (c) if there are no children, but one or more of parents, brothers and sisters and their issue survive, the spouse will take personal chattels, a statutory legacy of £200,000 and half the residue (if any) absolutely. The other half is shared by the parent(s) absolutely or, if neither survived, the brothers and sisters (or their issue) absolutely. A surviving spouse can elect to take the family home in satisfaction of any absolute interest, including the capital value of any life interest (Intestates Estates Act 1952 Sch 2, s 5). If there is no surviving spouse, any children (or their issue) will take the whole estate absolutely. Otherwise, the whole estate goes to the other surviving relatives in a specified order of preference or, failing that, the Crown. The specified order is parents; brothers and sisters (or their issue); half brothers and sisters (or their issue); grandparents; uncles and aunts (or their issue); and parent’s half brothers and sisters (or their issue). DCA consultative documentA consultation paper reviews the adequacy of the amount of the statutory legacy. Views are sought on whether the amount could be changed and, if so, to what. A provisional proposal is made for an increase: the proposed increases are from £125,000 and £200,000 to £350,000 and £650,000 respectively. The consultation closes on 7.9.05.(DCA Consultative Document 15.6.05) The Law Society’s Gazette of 16.6.05 quotes David Semmens of Trowers & Hamlins as commenting on the unfairness of the current system, in pitting spouses against children. He said that one solution would be for some of the spouse’s money to be put in trust for the children. ‘This would protect the capital for the deceased’s children, particularly where he or she has children from an earlier relationship, whilst ensuring that the surviving spouse could continue to live in the matrimonial home and have access to money during their lifetime.’ CommentIncreases in the spouse’s statutory legacy to £350,000 and £650,000 respectively might be seen as a step in the right direction. However, certainly in what might be described as not unusual estates (ie not of staggeringly rich people), the failure to make a Will may continue to mean a liability to a measure of IHT on the first death (insofar as the chargeable transfer on death exceeds the nil-rate band), coupled with the general undesirability of putting what might be substantial sums of money in the unfettered ownership of children once they attain the age of 18. A deed of variation cutting down the minor’s interests may well (depending on the circumstances) not receive the sanction of the Court.There can be no substitute to ensuring that clients have well-drawn and regularly reviewed Wills, which are not only tax-efficient, but also (perhaps accompanied by regularly reviewed letters of wishes) meet the specific financial and personal circumstances of the family. July 2005 Matthew Hutton MA, CTA (fellow), AIIT, TEP More InformationThe above article has been taken from Matthew Hutton’s Capital Tax Review, a quarterly update for professional advisers of private clients. For more information, visit http://www.taxationweb.co.uk/books/capital_tax_review.php.About the AuthorMatthew Hutton is a non-practising solicitor (admitted 1979), who has specialised in tax for over 25 years. Having run his own consultancy (latterly through Matthew Hutton Ltd) until 30th September 2000, he now devotes his professional time to writing and lecturing.Matthew Hutton’s Autumn Series of Estate Planning Conferences resumed on 15 September 2005 in Stratford-upon-Avon. The remaining dates and venues are listed below. SDLT ConferenceMatthew Hutton is running an SDLT conference in London on 31 October 2005. For further information, please visit TaxationWeb’s Tax Events Calendar: www.taxationweb.co.uk/taxeventsMatthew Hutton’s Autumn Series of ConferencesThursday 15 September - Stratford Manor, Stratford-upon-AvonTuesday 4 October - Wood Hall, Wetherby Tuesday 18 October - Renaissance Hotel, nr Derby For further details, brochures and booking forms please contact Matthew Hutton: email – This e-mail address is being protected from spambots. You need JavaScript enabled to view it or telephone – 01508 528388.
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About The Author  Mark McLaughlin is TaxationWeb's Co-Founder, Director and Technical Editor. He is a Fellow of the Chartered Institute of Taxation and a member of the Association of Taxation Technicians and the Society of Trust and Estate Practitioners. He lectures on tax subjects, is co-author of Tottel's IHT Annual and Ray & McLaughlin's IHT Planning, and Editor of Tottel's Tax Planning and Annual series. Mark's work has also been published in Taxation, Tax Adviser, Tolley's Practical Tax, Tax Journal and Simon's Weekly Tax Intelligence. Since January 1998, Mark has been a consultant in his own tax practice, Mark McLaughlin Associates, which provides tax consultancy and support services to professional firms. He publishes a regular 'Tax Update' e-Newsletter for clients and other professional firms. To receive future copies, contact Mark via his website. |
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Article Added Saturday, 08 October 2005 | 4776 Hits |
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