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Matthew Hutton MA, CTA (fellow), AIIT, TEP author and presenter of Monthly Tax Review, highlights some recent Inheritance Tax developments.

Compliance on Death: Joint Assets

Context

In their April 2006 Newsletter HMRC explained that they were receiving an increasing number of IHT 200s that were not fully completed. HMRC told agents that they were responding to this by retaining the D18/Inventory until a complete account was delivered. The most common problem with the IHT 200 is that full information on joint assets is not provided either because form D4 is not completed or because it is not completed fully.

Form D4: some of the main issues

This article discusses some of the main issues.

• HMRC receive a number of accounts where the question about joint property on page 2 of the IHT 200 has been answered 'No', and no form D4 has been submitted, but where the form D12 indicates that the deceased owned a fractional share of a property. When HMRC ask why a D4 was not completed they are often told that it is unnecessary because the property was owned as 'tenants in common' or, occasionally, because it was owned as 'joint tenants'. This is incorrect. If property is owned jointly, whether as 'tenants in common' or 'joint tenants', a completed form D4 is always required. If one is not submitted with the IHT 200 HMRC will ask for one before they will issue the D18/Confirmation. This will of course delay the issue of the Grant/Confirmation. Agents can avoid this by ensuring a form D4 is always completed where there are fractional shares of property.
• HMRC also find that where a form D4 is submitted with the IHT 200, it; is not always fully completed. Again, this means HMRC have to ask for missing information before they can issue the D18/Confirmation therefore delaying the issue of the Grant/Confirmation. The D4 (Notes) provide guidance on what: information is required and the issues that may arise. Agents may wish to use a separate D4 for each item of joint property, rather than trying to squeeze all the information about several items onto one form.
• HMRC need to know who the other joint owner(s) are. It is helpful to them if the agent states their relationship to the deceased; this gives them a clearer picture of the joint ownership. It is particularly important to tell HMRC when the joint ownership began. If it began many years ago they may not need the exact date; '20 years ago' or '1986' would suffice. But, if the joint ownership began within, or just outside, 7 years of the date of death HMRC will need the exact date.
• It is also important to say how much each joint owner provided. In some cases the position will be quite clear, for example where a deceased and his sister inherited a house from their father, or where the deceased opened a joint bank account with his son and provided all the money in the account. In other cases, for example where both joint owners contributed but the contribution was unequal, it may be more complex. HMRC also need to know how any income from joint assets was dealt with, as this may be indicative of the beneficial ownership. Whatever the circumstances, HMRC need full details in order to consider exactly what claims for tax arise.
• Where the joint asset is a bank or building society account HMRC need to know about withdrawals from the account. This is because any withdrawals by the joint owner(s) in excess of any funds provided by them will constitute gifts by the deceased.
• Finally HMRC need to know whether the joint asset passes by survivorship or under the deceased's Will or intestacy.  This is particularly important where part of the estate devolves to an exempt beneficiary.

Providing full details of the joint property on delivery of the IHT 200 will help avoid delay in the issue of the Grant/Confirmation. It will also make it more likely that HMRC can agree the extent of the claim without the need for additional enquiries. In the longer term HMRC are planning to redesign the form D4 to make it easier for agents to provide the information HMRC require.

Reversionary Interests: Possible Planning Mechanism

Context

Among some interesting ideas presented at a Pump Court Tax Chambers evening seminar on 22.11.06 was the following.

Settlement on short-term discretionary trust followed by gift of reversion
If I settle on my son for 6 months or on discretionary trusts with remainder to myself, I make only a small transfer of value.  The reversionary interest is still in my estate.  Note that the remainder is not given and while it is reversionary FA 1986 s102A should not apply. 

If I give away the reversionary interest to another individual that would be a PET.  But if you want to create a settlement which is long lasting, you have not achieved very much.

So, suppose I settle on a 6 months’ discretionary trust with reversion to myself, BUT I provide that the trustees should have an overriding power to create new trusts if someone other than myself holds the reversionary interest.  So I give the interest away to my son.  This is a PET.  So I have created a settlement without a corresponding large immediately chargeable transfer.

(Andrew Thornhill QC and Jeremy Woolf speaking on Inheritance Tax issues at a Pump Court Tax Chambers evening seminar 22.11.06)

Capital Taxes Changes its Name

As Capital Taxes no longer exists as an entity, HMRC have stopped using the name and the Department will in future be known as ‘HMRC Inheritance Tax’.  Over time, all references to Capital Taxes, CT and CTO will be removed from HMRC’s letters, forms and guidance.

(HMRC’s IHT Newsletter December 2006)

Matthew Hutton MA, CTA (fellow), AIIT, TEP

About Monthly Tax Review (MTR)

MTR is a 90 minute monthly training course, held in London, Ipswich and Norwich – as well as a reference work.  Each Issue records the most significant tax developments over a wide range of subjects (see below) during the previous month, containing 30 to 40 items.  The aim is not necessarily to take the place of the journals, but rather to provide an easily digestible summary of them and, through the six-monthly Indexes, to build up, over the years, a useful reference work. 

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MTR is designed not primarily for the person who spends 100% of his/her time on tax, but rather for the practitioner (whether private client or company/commercial) for whom tax issues form part of his/her practice.  Attendance at MTR qualifies for 1.5 CPD hours for members of the Law Society, for 1.5 CPD points for accountants (if MTR is considered relevant to the delegate’s practice) and (subject to the individual’s self-certification) should also count towards training requirements for the CIOT.  For STEP purposes, MTR qualifies for CPD in principle, on the grounds that at least 50% of the content is trust and estate related.   
 
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