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Issue 36 – April 2009  

Articles
 Features
News
 Legislation
Events
Discounts
Articles

A flexible friend
LNB News 19/03/2009 25
Published Date: 19 March 2009
Author: Christian Ward
Journal Name: Taxation
Journal Date: 19 March 2009
Journal Citation: Taxation, 19 March 2009, 272
Jurisdiction: England; Scotland; Northern Ireland; Wales

Abstract: Taxation, 19 March 2009: Flexible reversionary trusts offer a unique combination of features.

Summary: Considers the attractions of flexible reversionary trusts for estate planning. This structure is particularly attractive for clients who require the inheritance tax savings, control and flexibility of a standard discretionary trust, but who also wish to retain potential access to the gifted capital. They can facilitate lifetime planning while providing a flexible structure to transfer wealth to family members both during and after the settlor's life.

Wills and probate: the vultures are circling
Journal Name: New Law Journal
13 March 2009

Reports on how Inheritance disputes are spreading to the world of trusts. There has been a marked interest in trust and estate litigation over the past couple of years. The global financial crisis is expected to accelerate the trend.

Wills and probate: update from the courts

Journal Name: New Law Journal
13 March 2009

Looks at the intricacies of will interpretation. Considers Privy Council guidance on will construction, and what happens when a residuary legatee becomes bankrupt.

Features

Government under pressure over farmers IHT relief

LNB News 27/02/2009 25
Published Date: 27 February 2009
Jurisdiction: England & Wales; European Union; Northern Ireland; Scotland
Related Digests: LNB News 05/06/2008 19; LNB News 24/09/2008 59

Abstract: The UK Government has until the end of March to decide if it will extend Agricultural Property Relief to cover farms across the EU and EEA, after being threatened with legal action by the European Commission. Michael Parker of the National Farmers Union tells Neasa MacErlean why he hopes the Government will comply.
 
Analysis: The UK Government appears to face a choice between extending Agricultural Property Relief (APR) on Inheritance Tax (IHT) to cover farms in the EU and EEA (European Economic Area) zones or dropping it altogether. On  January 29 the European Commission gave notice to the UK that it considers the present arrangement 'discriminatory' and could refer the UK to the European Court of Justice if 'no satisfactory response' is made by the UK before the end of March.

Michael Parker, head of tax at the National Farmers Union, is hoping to meet the farming specialists at H M Revenue & Customs (HMRC) shortly to discuss the issue.  "Potentially it could be quite damaging," he says. "This is a very important relief because it allows the continuity of family farm businesses. We would be greatly concerned if this important relief were jeopardized for genuine farming businesses, wherever they are farming." he says.
 
The statement from the European Commission is clear: "The limited scope of the relief may dissuade taxpayers from investing in agricultural and forestry property outside the UK. Consequently, the Commission considers that the United Kingdom's legislation, in its current state, is not compatible with the free movement of capital provided by Article 56 EC Treaty and Article 40 of the EEA Agreement."

There are concerns that the UK will be disinclined, particularly in a time of recession, to spend yet more Government money on extending a UK tax relief. However, if organisations such as the National Farmers Union put pressure on the Government it could be difficult for the Treasury to say no. Having spent £37 billion rescuing banks in October alone, the Government could find it hard to defend taking a tough stance on farmers. If campaigners for farmers were successful, they might well hope to hear a formal announcement in the Budget on April 22 or in the accompanying papers.
 
The sums involved may not be very large. While the 08 / 09 cost of APR is expected to be about £190 million, according to HMRC estimates, the cost of protecting charitable legacies against IHT is expected to be over 40 per cent higher at £270 million. And the cost of the APR relief is only 1 per cent of the cost of tax relief on pension scheme contributions (which amounts to £20,000 million).
One issue that HMRC will be looking closely at is the inter-relationship between APR and Business Property Relief. In some cases it may be able for farmers to get relief under Business Property Relief if they could not get it from APR.

In early February HMRC published interim guidance on the chapter of its IHT manual that covers APR. Of particular interest to tax experts is the guidance on farmhouses—an issue that has been frequently under the spotlight in recent years. Parker says "We welcome this updated guidance, which takes account of recent tax cases."

News

4,000 wills invalid following solicitor ban

MORE than 4,000 wills drawn up by a Midland firm which charged extortionate prices have been scrapped after a major investigation.

The legal documents were written by Solicitors Probate Services Ltd, which in less than two years has become one of the biggest probate firms in Britain.

The Solicitors Regulation Authority (SRA) suspended the company’s founder, Stephen Share, from near Worcester, from practising as a solicitor last August and banned the firm itself from acting as executors in wills.

SPS Ltd, based in Malvern, Worcestershire, appealed against the decision in the High Court, but lost.
The SRA has confirmed it is nearing the end of a seven-month inquiry into the probate firm.

A spokesman confirmed that 4,500 wills in which either Mr Share or the SPS Ltd were named as executor have been returned to the clients. None of them is now valid.

Many customers paid a modest £39 for their wills after being approached by SPS Ltd agents who touted for business in supermarket foyers.

But some were persuaded to make a £2,100 upfront payment in exchange for the probate company being named as executor.

Draft amendments to pensions chapter
HMRC has published draft amendments to the pensions chapter of the Inheritance Tax Manual that cover changes to the treatment of pensions, including Alternatively secured pensions and scheme pensions. Comments are invited by 30 April 2009.

Draft amendments to the pensions chapter of the Inheritance Tax Manual have been published covering changes to the Inheritance Tax treatment of pensions, including Alternatively secured pensions and scheme pensions. A draft version of a new unauthorised payments calculator has also been published.

HMRC Guidance: Inheritance Tax rules for income drawdown

The present will continue to apply to unsecured pensions in much the same way as they did pre A day (see IHTM17101 et seq). The effect of section 12(2A) – (2G) IHTA is to legislate the Inheritance Tax practice (which contained an element of concessionary treatment) dating from 1992 in relation to pension choices by scheme members. The practice was first published in IR Tax Bulletin 2 (February 1992) (IHTM17092) and subsequently updated in 1999 (IHTM17102) to take account of the introduction of Income Drawdown under pension schemes.

HMRC Guidance: Where no charge to Inheritance Tax arises

In line with previous practice, section 12(2A)-(2G)IHTA switches off potential Inheritance Tax charges under section 3(3)IHTA in various circumstances where they might strictly arise as a consequence of choices made by a pension scheme member which results in payment of enhanced death benefits to the member's beneficiaries.


  • Firstly where the member deferred their pension benefits at a time when they were in    good health (here the disposition is not treated as a transfer of value ─ section 10) but subsequently, despite deterioration in their life expectancy, the member did not vary that decision. (section 12(2C)IHTA)
  • Secondly where the deferral took place at a time when the member's life expectancy  v  was seriously impaired but the resulting death benefits were paid to their spouse, civil partner or person who was financially dependant on them at the time of death (section 12(2D)(a)IHTA ).
  • Finally the legislation further provides for an exemption where the payments are made to charity (section 12(2D) (b) IHTA.
HMRC Guidance: The charge to Inheritance Tax under section 3(3) IHTA

The charge to Inheritance Tax under section 3(3) will be calculated on the basis set out at IHTM17102, which reproduces a guidance note issued by HMRC following discussions with ABI in June 1999: in particular, paragraphs 3.2 and 3.3 of the guidance note are relevant.

For example: X defers taking his retirement benefits at the age of 65 (his selected retirement date). He is in terminal ill health at the time and dies aged 66 on 29 July 2007. The pension fund immediately before his death would provide a tax free lump sum of £87442 plus an annuity of £17093 guaranteed for ten years. The section 3(3) charge extends to the tax free lump sum plus the open market value of the residual annuity of £17093 which X could have taken.
The annuity is calculated at a figure of £88450 per the annuity calculator below (see IHTM17220 above) which is arrived at by discounting the 120 guaranteed monthly payments, net of income tax at the basic rate, at an annual effective rate of interest of 6%. Allowances have also been made for the non assignability of the annuity (10%) and the open market purchaser's costs (3%approx).

The section 3(3) claim is therefore £87442 plus £88450 i.e. = £175892. The liability for the charge will as before fall on the person liable for the tax within the meaning of s199 IHTA with accountability for the tax falling within section 216 IHTA.

HMRC: Inheritance tax to fall under new system of appeals


Abstract: This brief outlines the new tax appeals system and HMRC's new internal review process, due to be implemented from 1 April 2009.
Summary: This Revenue & Customs Brief outlines the new tax appeals system and HMRC's new internal review process, due to be implemented from 1 April 2009.

Introduction
From 1 April 2009 there will be a major change to the current system of tax tribunals. To coincide with this, HMRC is changing the way it handles disagreements about tax. The new review process will help provide a more consistent approach to the way we seek to resolve disputes with those who disagree with appealable tax decisions made by HMRC.

At the moment, there are three main tribunals which deal with appeals against HMRC decisions. From April, these tribunals will be abolished and replaced by a single Tax Chamber in the First-tier Tribunal which will consider all disputes and hear appeals in relation to both direct and indirect tax.

New tribunal
The Tribunals, Courts and Enforcement Act 2007 introduced two new bodies, the First-tier Tribunal and the Upper Tribunal. Over time most existing tribunal jurisdictions including the tax tribunals will be transferring into the new bodies. The new system went live on 3 November 2008. These new statutory bodies are administered by the Tribunals Service which is part of the Ministry of Justice.
Both First-tier and Upper Tribunals are divided into 'chambers' where similar types of appeal are heard. On 3 November when appeals formerly heard by the Social Security Appeals Tribunal successfully transferred to the First-tier Social Entitlement Chamber.

Tax appeals will transfer to a new First-tier Chamber, to be known as the Tax Chamber, on 1 April. A right of appeal against decisions of the First-tier Tax Chamber will also be created to a new chamber in the Upper Tribunal to be known as the Finance and Tax Chamber.

The First-tier Tribunal will deal with the vast majority of appeals, apart from a very small number of the most complex appeals that will transfer to the Upper Tribunal at first instance. The Upper Tribunal will mainly deal with appeals against decisions of the First-tier Tribunal. Work within each tier of the tribunal will be organised into specialist chambers, one of which will deal with tax.

The reforms will affect everyone who disagrees with one of our tax decisions and may wish to have it reviewed, or to make an appeal. As part of the reforms, the General Commissioners and Special Commissioners of Income Tax, the Section 706/704 Tribunal and the VAT & Duties Tribunals will be abolished after 31 March 2009 and their existing functions will transfer into the new First-tier Tax Chamber.

Some straightforward appeals will in future usually be dealt with on paper without the need for HMRC or customers to attend a hearing.

Where a hearing is needed the Tribunals Service will arrange this. Most appeals will be heard at one of a national network of tribunal hearing centres.

Internal review
To coincide with tribunal reform, our customers will be entitled to request an internal review of appealable tax decisions. This new legal right to a review will replace reconsiderations and mandatory reviews in indirect taxes (mandatory reviews will remain for decisions about the restoration of seized goods).

Reviews will be optional and will be done by a trained review officer, who has not previously been involved with that decision, who will be able to offer a balanced and objective view. In the vast majority of cases the review officer will be outside the immediate line management chain of the decision maker.

We must complete reviews within 45 days (unless another period is agreed with the customer). If customers do not want a review, or if they do not agree with the result of the review, they can appeal to the tribunal for a decision.

Further information
You can find out more about tribunals reform and internal reviews from the Tribunals Reform Project and more about changes to the tax tribunals from the Tribunals Service website.



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