Tax Clinic April 2009: Intestacy & IHT, Forms P85, Dividends Timing, VAT Reclaims on Building

In his April tax clinic, Malcolm Finney casts further light on a number of tax issues for taxpayers and professionals alike: Intestacy and IHT, When does Form P85 apply, Timing of Dividend Payments for Personal Tax, Reclaiming VAT without a VAT-registered Builder

This month’s clinic looks at FOUR issues:

1. INTESTACY AND IHT
2. DOES FORM 85 APPLY ?
3. TIMING OF DIVIDEND PAYMENT FOR PERSONAL TAX
4. VAT RECLAIM WITHOUT VAT REGISTERED BUILDER

1. INTESTACY AND IHT

Interestingly, although the majority of people die without making a will, (i.e., die intestate), very few queries seem to arise on the Forum in connection with such deaths and the consequent IHT impact.

However, one recent such query on the interaction between Intestacy and IHT illustrates three points:

1. The need to be aware of legislative changes (so as to ensure knowledge is up to date (in this case the changes to the amount to which a surviving spouse was entitled effective 1st February 2009 under the intestacy rules));
2. The need for those providing answers to queries to perhaps read them a bit closer (as indicated by the answers provided by “maths”);
3. The fact that although, of course IHT is a tax matter, to provide advice about the tax consequences often requires knowledge and understanding of non-tax but related matters (i.e., the rules applying on intestacy).

2. DOES FORM 85 APPLY?

With a proliferation of HMRC forms for just about everything, it is hardly surprising that the non-professional may be unclear as to which form is relevant for their particular purposes.

“Janet 999” in her query asked about the ability to obtain UK source bank interest “gross” by completing what she referred to as Form 85 (see Does  Form 85 Apply?).

The respondent “dennywren” pointed out that the correct form was R105.

Jenny999 suggests she has left the UK indefinitely. If this is correct then she will, from the day following the day of her departure from the UK, have become neither UK resident nor ordinarily resident in which case it would be acceptable to file R105 with her bank (note the filing is not with HMRC). However, there is no statutory requirement for the bank/building society to accept the R105 in which case income tax at source will continue to be deducted.

In this case the provisions of a relevant double tax agreement may be invoked or Form R85 may be filed with the bank (assuming that the conditions for making the filing are satisfied (see R85 Helpsheet (2008)).

3. TIMING OF DIVIDEND PAYMENT FOR PERSONAL TAX

Sometimes, the apparently easiest of questions are not always so straight forward. In Timing of Dividend Payment of Personal Tax Return, "Rickety" asked:

       “...do I include dividend payments that were actually paid to me (money in my account) for a specifc personal tax return year OR
       dividend payments due (based on the date in the dividend certificate)”

“Pawncob” answered:

       “The date on the div voucher is the date for payment, although it may take several days to reach your account”.

Strictly speaking, it is necessary to identify if the dividend is a “final” or “interim” dividend. If the dividend is a “final” dividend then it is regarded as “paid” (and thus taxable on the recipient) as and when it is due and payable which is when it becomes an enforceable debt. It becomes an enforceable debt on the date it is declared by the board of directors unless the date of payment is specifically stated to be a date later than the date of declaration (when the date for income tax purposes is the later date).

The declaration of an “interim” dividend does not at that time create an enforceable debt; in this case the dividend is taxable on the recipient on the date it is paid.

“TN” adds a useful practical point under which in certain circumstances a dividend may still be declared and paid, even if the company lacks cash resources (assuming the existence of distributable reserves), by simply crediting the recipient director's loan account with the company.

4. VAT RECLAIM WITHOUT VAT REGISTERED BUILDER

An interesting discussion as to whether discrimination is in point, as a matter of law, or perhaps only in the eye of the beholder appears in the discussion between the querist, “steveoutbush”, and the respondent “seanjames”  in  the query VAT Reclaim Without VAT Registered Builder.

“Steveoutbush” wanted to know the justification for the discrimination which he believed was the case concerning work done to his cottage by a non-VAT registered builder as compared to what the position would have been had the builder been VAT registered or if he were to undertake the work himself.

The issue also illustrates, yet again, that taking advice “upfront” may save arguments and tax liabilities (be they VAT or otherwise) at a later date.

Article Added Sunday, 19 April 2009

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