Malcolm Finney considers five questions posted on TaxationWeb's Forum: Father & Son Joint Owners to Avoid IHT; Renting Property to a Relative; Working in Japan for 13 months; P11Ds Reimbursed Expenses; An Inheritance Tax Mistake?

1. Father & Son Joint Tenants to Avoid IHT

A recent query illustrates the difficulties for those contributors trying to provide helpful answers to what the person posing the query often perceives as a simple question.

 “Jooliona” raises a question relating to inheritance tax on a property jointly owned with his father ( Father & Son Joint Tenants To Avoid IHT? ) . After answers had been provided Jooliona commented:

“I am a simple person asking for a simple answer to what should be a simple question!?”

and following further discussion added:

“I give up. this is beyond my tiny brain. we'll just have to pay through our noses and look happy I suppose. thanks anyway”.

I can well understand Jooliona’s frustration but unfortunately many apparently “simple” questions involve complex issues; in addition, albeit understandably, the person posing the question is not usually best placed to marshal all relevant facts and, statements are often made which are in fact (albeit unintentionally) contradictory thus making any sensible contributor response difficult (see also the discussion on VAT de-registration where contributor “Spidersong” comments: “I think I need to go back to basics here, what is it they're actually reviewing, what decision have you appealed against?”; Deregistration).

For any contributor reading this note may I respectfully suggest that any question posed should preferably be short and to the point; follow up points then can be pursued once both questioner and contributor are “on the same wavelength”. Numbering points/questions also helps break up the narrative and makes for easier corresponding responses.

2. Renting Property to a Relative

Many parents, grand-parents and/or relatives are well aware of the difficulties facing the young who are keen to get on the property ladder. “Heaton”, who has a small property rental portfolio, wants to know whether it would be possible to rent one of the properties to a nephew at below market rent without any adverse tax consequences arising which would enable the nephew to save for a “deposit” ( A Good Deed That Might Backfire? ).

As contributor “RAL” points out, renting at below market rent would be possible and with limited (if any) adverse downside; the major downside being that any tax deductible expenses to be set against this particular property would be restricted to the amount of any rent charged; in other words a tax deductible loss could not be created where the expenses exceeded the rent charged.

Hopefully, a “good deed which should not backfire”.

3. Working in Japan for thirteen months

“Angelwa” appears to feel the same as “Jooliona” above where she says:

“Ok getting a headache now tax advice here I come! Why can't things be straight forward”. ( Entertainers Paying Tax in Japan ).

Angelwa’s question relates to a topic which regularly appears on TaxationWeb, namely, ascertaining UK residence when working abroad. Angelwa’s comments reflect what the popular press often state about acquiring non-UK residency, i.e., simply restricting visits to the UK to below 91 days per tax year. Unfortunately, this is only one half of the story. The new HMRC 6 Guide is supposed to help those either arriving in, or leaving, the UK vis a vis determining their residence (and domicile) status.

However, despite its use of non-legal jargon, it is in fact of little use to anyone not familiar with the background and case law under-pinning the concepts of “residence” and “ordinary residence”.

In the present case the lack of advice has precipitated both a UK and Japanese tax liability; it may well have been possible with little change to the arrangements to have avoided any UK tax charge and the consequent need to file a Self Assessment return.

4. P11Ds: Reimbursed Expenses

Richard Dorset’s query concerning the possible taxability of business travel expenses paid by his employer highlights the mechanics of the tax system ( P11D - Paid Back Expenses ).

Basically, payments made by an employer to an employee are prima facie treated as taxable salary. It is for the employee, not the employer, to then demonstrate that such receipts are not taxable. The payments made by the employer are entered on the employee’s Form P11D which HMRC has a copy of; it is for the employee to then make the appropriate claim on his/her Tax Return.

As contributor “AvokadoK” indicates, this need for the employee to claim is sometimes removed where the employer has obtained from HMRC an appropriate dispensation.

5. Inheritance Tax - a Mistake?

Tax, in all its forms, is unfortunately complex and to a very great extent the “layman” is at the mercy of the tax professional advisor. Sadly not all tax advisors are up to the task and I suspect that sometimes the tax professional will seek to gloss over where a mistake has been made leaving the layman to pick up the cost.

Whilst limited information has been provided by “Gromit2303” ( Inheritance Tax Mistake!? ) it would appear, prima facie, that the advisors to the deceased’s estate in question have made an error the consequences of which appear to have been laid firmly at the door of the various beneficiaries at no small cost.

Lee Young, one of TaxationWeb’s frequent contributors, holds back (in typical fashion) little in offering practical advice to Gromit2303 in suggesting that the advisors used by the executor of the will be called to account for their apparent error providing, no doubt,  some much needed comfort to the questioner.

Article Added Sunday, 19 July 2009 | 2970 Hits

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