Enter Your E-mail

Matthew Hutton MA, CTA (fellow), AIIT, TEP, Presenter of Monthly Tax Review, highlights a selection of practical issues, involving Deeds of Variation, dispositions for IHT purposes, and excluded property trusts.

1. Deeds of Variation: Myth That They Vary a Will

Context

A deed of variation is a deed of gift. It does not vary a Will. Assuming compliance with IHTA 1984 s142(2) and TCGA 1992 s62(7) such a deed is taxed as if it has varied the Will for IHT and (limited) CGT purposes.

Ensure that the donor has the power to make the gift

This is essential. One needs to beware such a gift in the Will as ‘to my wife for her life and then to our children living at her death’. If it is wanted in all the ircumstances to vary that, certainly the widow can vary the destination of her life interest, but with no power over capital as it is unknown which of the children will be living at her death. One should use the power of advancement (checking that it is there in appropriate terms) to close the class of beneficiaries. Then the deed of gift can be made by the widow and by those of the children living at father’s death in favour of whom the gift is made, under the provisions of the Will as they are after exercise of the power of advancement.

(Jeremy Heal of Howes Percival speaking at the Norwich STEP lecture on 25.3.09)

2. Dispositions which are not Transfers of Value – Inter Vivos Only?

Context

A recent Trusts Discussion Forum thread, under the head of ‘IHT and disabled beneficiaries’, considered whether the list of dispositions in IHTA 1984 s10 and following – and specifically s10 (dispositions not intended to confer gratuitous benefit), s11 (dispositions for maintenance of family) and s12 (dispositions allowable for income tax or conferring benefits under pension scheme) – are restricted to lifetime transfers. HMRC certainly take the view that they are.

An analysis

By s3(1), a transfer of value is ‘a disposition made by a person...’. There is no definition of ‘disposition’ in the Act, but clearly a transfer of value is a disposition. S4 provides for the deemed transfer of value which applies on death, subject to the application of any exemptions in part II of the Act. Ss10-12 (including the maintenance of disabled relatives) relate to dispositions which are not transfers of value because of the circumstances; however, these are not exemptions so cannot apply to override the s4 transfer on death, which it is stated in s4 will be a transfer of value. Therefore it would appear that ss10-12 can only apply to lifetime dispositions, otherwise they would have been included in part II. Tolley also states that ss10-12 apply only to lifetime transfers.

(Trusts Discussion Forum 23.3.09 posting by Simon Northcott of Brooke-Taylors)

Because the deemed transfer on death is not a disposition, it has to be deemed to be a transfer. The moral is ‘diarise dispositions for maintenance of family for the death bed, but don’t hope to rely on them by Will’.

(Trusts Discussion Forum 19.3.09, posting by Tom Dumont of Radcliffe Chambers)

3. Excluded Property Trusts and Reservation of Benefit

Context

MTR 2/09 Item 2.5 elaborated on the reason for the trap in FA 1986 s102(4) that there can be an IHT liability where a beneficiary is excluded from a settlement and dies within seven years, even where it is an excluded property trust.

Further comment on the practical position

Nothing in s102(1) serves to confine its operation geographically. This doesn’t matter, so far as s102(3) is concerned, but - absurd though it is - the result of the inadequate wording of s102(4) is that someone with absolutely no connection with the UK can be deemed to have made a PET [and accordingly Item 6 of the Points Arising note for MTR 2/09 should be qualified]. S3(4) says that a PET made within seven years of death is a chargeable transfer. And s2 offers no exception for ‘excluded property’.

One has to assume that HMRC would have no intention of pursuing anyone overseas for tax on the basis of this analysis. Therefore, can one infer that, in order for that absence of pursuit to be validated, it is accepted that s102(4) be interpreted as though it referred to a disposition rather than to a PET?

(Trusts Discussion Forum 26.3.09, posting by Ray Magill)

What is 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. 

The first aim, therefore, of MTR is to inform. The second and subsidiary aim is to provide a monthly forum for the discussion of issues that tend to come up in professional practice, largely, though not exclusively, prompted by specific items in MTR.

Who should come to MTR? Does it attract CPD?

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.  
 
What is the content of MTR?

The material is drawn from HMRC press releases, Tax Bulletins, VAT business briefs, case reports and articles in the professional press. Each item carries a reference as to source which can be followed up if necessary. 

The logic of the ordering of the 12 sections is as follows: first, Capital Taxation (viz 1. Capital Gains Tax, 2. Inheritance Tax and 3. Stamp Taxes). Second, Personal Tax (4. Personal Income Tax). Third, Business Related Matters (viz, 5. Business Tax, 6. Employment, 7. National Insurance and 8. VAT & Customs Duties). And fourth, Miscellaneous (viz 9. Compliance, 10. Administration, 11. European and International and 12. Residue). An annual binder is provided within the subscription cost.

Despite an inevitable element of selectivity, MTR aims to be catholic in its coverage – and this is reflected in the presentations where appropriate: there may well be NI, VAT or employment tax points of which the person advising mainly on estate planning (for example) should at least be aware. That said, the London sessions at least tend to focus, by majority request, on estate planning issues: it is possible that in future one of the sessions might be geared more to company/commercial matters. 

How is MTR circulated?

The Notes are emailed to each delegate in the week before the presentations (and thus can easily be circulated around the office), with a follow-up four or five pages of practical Points Arising during the various sessions (whether in London, Ipswich or Norwich).

When and where is MTR held?

The London meetings take place at the National Liberal Club, One Whitehall Place, London SW1, on either the first or second Tuesday of the month, generally in the David Lloyd George Room. There is a choice of four sessions: 9.00 - 10.30 (3 places available), 11.00 – 12.30 (6 places available), 1.00 – 2.30 (8 places available) and 4.00 – 5.30 (3 places available).

The Ipswich meetings take place generally on the first or second Wednesday of the month at the offices of Pretty’s solicitors 45 Elm Street, Ipswich 5.00 – 6.30pm (5 places available). 

The Norwich meetings take place at the Norfolk Club, Upper King Street, Norwich on the first or second Thursday of the month from 5.30 – 7.00pm (3 places available). 

Dates are fixed up to a year in advance and any one delegate from a firm can take up the firm’s place each month. Attendance is limited to no more than 30 delegates in London and 25 delegates in Ipswich and Norwich (to make for ease of round table discussion).  The cost in London is £60 plus VAT, and in Ipswich and Norwich £50 plus VAT (billed every six months in advance).

How do I find out more?

For further details, visit http://www.matthewhutton.co.uk/ on Conferences & Seminars and then Monthly Tax Review – or email Matthew on mhutton@paston.co.uk.

For those whose firms unable to make the monthly seminars but wishing to order MTR as 'Notes Only' (at £180 per annum for the 12 issues, invoiced six-monthly in advance), visit  our sister site, TaxBookShop.com:
Monthly Tax Review Notes