The April 2014 edition of HMRC’s Trusts & Estates newsletter for trusts and estates practitioners can be found here.

The Upper Tax Tribunal has ruled that it is not bound by precedent set by the England & Wales High Court.

This means that it accepted HMRC’s plea that the prior case of Pierce v Wood was wrongly decided with the result that the disposal of scrip dividend shares by the discretionary trust in question is liable to the ten-year inheritance tax charge.

The full report can be found here.

“23 April 2014

Power of Attorney (PoA) Update – Manual Submissions

There is currently a 12 week waiting period before your PoA can be processed and returned to you. This week we will be working on PoAs received on and around 27th January 2014.

If there is a genuine urgency, we will expedite the registration of a PoA ‘on cause shown’. We ask that people respect this service and only use it in cases of true urgency to avoid defeating its purpose.”

More on this can be found here.

“9 April 2014

Turnaround Time for Account Reviews

There is currently a 16 – 20 week waiting period for accounts to be reviewed. We apologise for any inconvenience the delay may cause financial guardians.

The Account Review Team are currently working with accounts received on and around 10th December 2013. Financial guardians who have queries regarding their accounts or the waiting time may contact opgreviewteam@scotcourts.gov.uk.

8 April 2014

Power of Attorney (PoA) Update – Manual Submissions

There is currently an 11 week waiting period before your PoA can be processed and returned to you. This week we will be working on PoAs received on and around 23rd January 2014.

If there is a genuine urgency, we will expedite the registration of a PoA ‘on cause shown’. We ask that people respect this service and only use it in cases of true urgency to avoid defeating its purpose.”

More on this can be found here.

The England & Wales Court of Appeal has overturned a High Court ruling in in which an accountancy firm’s client was awarded damages against the firm because it had failed to advise him about a tax planning opportunity. The earlier decision caused some controversy and also generated quite a lot of publicity as it seemed to mean that practitioners had a contractual duty to help clients avoid tax by any legal means.

The case concerned an Iranian businessman, Hossein Mehjoo, who retained his Iranian domicile of origin for UK tax purposes. He had previously successfully sued Harben Barker for £1.4m after the firm failed to recommend he use an offshore tax avoidance scheme – known as the Bearer Warrant Scheme (BWS) – in order to reduce his CGT bill.

However, the Court of Appeal ruled that such a decision was not “sustainable” since Harben Barker “were not and had never held themselves out to be specialist tax planners”.

This is from the ruling:

“The reasonably competent accountant setting out to advise Mr Mehjoo of the tax consequences of the sale would not, in my view, have been under any obligation to raise for discussion the claimant’s domicile unless it was relevant to the CGT liability on the disposal. The accountant would have known that it gave Mr Mehjoo no tax advantages in relation to the sale of the BFL shares unless the situs of the shares could be changed. As this was something which HB neither knew or could have been expected to know was achievable, there was no reason to mention the matter still less a liability in negligence for not having done so. Although not in any sense conclusive, it is not insignificant that none of the other firms of specialist tax advisers whom Mr Mehjoo subsequently consulted suggested he should consult a non-dom specialist or raised the possibility of using a scheme like the BWS. None of them has been sued in negligence.”

One final point.  It is not clear if this ruling completely removes the presumption of an accountant’s contractual duty to help a client avoid tax.  The judgement it seems is based more on the fact that Harben Barker could not have been expected to know that their client, as a non-dom, could have switched the situs of the shares without triggering a CGT charge.

The full case report can be found here.

The England and Wales Court of Appeal has held that an “Old Master” painting is a “wasting asset” for Capital Gains Tax (CGT) purposes.

The wasting asset in this case was a painting by Sir Joshua Reynolds depicting Omai, a Tahitian brought to England by Captain Cook. The painting had been owned by the Howard family and kept at Castle Howard since 1796, but on 29 November 2001 the executors of the late Lord Howard of Henderskelfe sold it for £9.4 million.

This triggered a large capital gain. The executors claimed an exemption from CGT under s45 of the Taxation of Chargeable Gains Act 1992 (all section references are to the TCGA Act) on the basis that the painting was “plant and machinery’ and consequently a wasting asset within the meaning of s44(1)(c).

HMRC as you would expect considered the sale of the asset to be subject to a capital gains tax charge.

The First-tier Tribunal agreed with HMRC but the executors won their appeal in the Upper Tribunal.

The general rule is that a wasting asset is one with a predictable life expectancy not exceeding 50 years.  However, all forms of “plant and machinery” are wasting assets regardless of the particular asset’s life expectancy. The case therefore hinged on the definition of ‘plant and machinery’.  The classic definition of “plant and machinery” is found in Yarmouth v France (1887) 19 QBD 647: “chattels which are ‘apparatus used by a business-man for carrying on his business’ and ‘which he keeps for permanent employment in his business’”.

The main factor in The Court of Appeal coming to this possibly surprising decision is that when it analysed the TCGA 1992 it could not find any reason to justify excluding the Omai painting from being “plant and machinery”.

The Court of Appeal acknowledged that its judgement may be defying common sense to classify the painting as a wasting asset but advised HMRC that with tax definitions, they must take the rough with the smooth.  I suspect that we may hear that comment being repeated in future cases.

“On the facts of this case, section 44 may have proved inconvenient to HMRC. They must, however, take the rough with the smooth; and this case may be an example of the rough.”

The full judgement, which also outlines in full the relevant parts of the 1992 Act, can be found here.

I am surprised that Labour has backtracked on almost all of the tax proposals it made in its interim report.  I did not expect Lamont to be so thoroughly routed by her opponents in her own party on the need to extend the powers of the Scottish Parliament in any meaningful way.  The final report can be found here and my blog on the interim report can be found here.

The final report does not even go as far as the final recommendations made by the Calman Commission.  Calman recommend 6 new tax powers for the Scottish Parliament.  The Scotland Act 2012, often referred to as “Calman minus” only implements 3 of them.

This is from the final report: “We concluded that, for a variety of good reasons, VAT, national insurance contributions, corporation tax, alcohol, tobacco and fuel duties, climate change levy, insurance premium tax, vehicle excise duty, inheritance tax, capital gains tax and tax on oil receipts should remain reserved.” It is not clear from the final report if the Aggregates Levy will be devolved.  What is meant by the Crown Estate recommendation is anyone’s guess.

With regard to the only tax power left standing when the music stopped; income tax.  The interim report said: “In our view, a strong case exists for devolving income tax in full, and we are minded to do so“.  How Labour got from that point to the income tax proposal announced yesterday is again anybody’s guess.  I will come back to that point.

This announcement must also have exasperated those still arguing for “devo plus” and “devomax”.  These proposals are often misunderstood, often intentionally.  “Devo Plus” would devolve almost all tax and welfare powers.  “Devo max” goes even further. Remember there are over 25 taxes, charges and duties when comparing the Labour proposal to “devo plus” or “devo max”. The Labour proposal such as it is, when taken together with the recent announcements by the Liberal Democrats and the Conservatives may well prove to be the final straw for those arguing for the devolving of substantial powers for the Scottish Parliament. That I suspect can only be good news for the “YES” campaign.

Johann Lamont was unable to even answer basic questions on the income tax proposal when she was interviewed on Newsnight Scotland.  A link to this interview can be found here.  To be fair, I am not sure if anyone could easily explain the income tax proposal.  If I was the cynical type I might suggest that this looks like a policy that is intentionally created to make sure it never sees the light of day.  I was also interested to hear that she is opposed to tax competition if it involves Scotland.

This is from my chapter in the Hassan/Mitchell publication “After Independence” and titled: “The continuing battle for Scottish tax powers”.   Nothing it seems has changed.

“So how have the opponents of substantial tax powers for the Scottish Parliament been able to ensure that substantial tax powers are not devolved to the Scottish Parliament?  A template can be seen from Calman, what might be called the “Calman doctrine”. Make a huge fuss about having someone look at the issue, take your time, offer as little as possible, exaggerate any problems, minimise or ignore any advantages and ensure HMRC and HM Treasury remain in control.”

“The majority of fees payable to the Public Guardian will increase on 1st April 2014.

Fees relating to powers of attorney remain the same, however it is recommended that frequent users of OPG services familiarise themselves with the fees that have altered to avoid overpaying.”

More on this can be found here.

The Court of Session has approved a “scrap of paper” as being a valid will.

Under this document referred as the “November will”,  Margaret Watt (the deceased), disinherited her husband in favour of her daughter (the pursuer in this case) by her first marriage.  The deceased had handwritten the will 20 years ago in pencil on a single sheet of A5 size paper with several holes that rendered indecipherable much of the text, including the date.   The will was purported to have been witnessed by a Mrs Reid a former neighbour of the deceased.

It was common ground that the November will had been written and subscribed by the deceased and that it bore to have testamentary effect.   It was not accepted that the subscription had been on 16 November 2004.  It was not accepted that Mrs Reid had witnessed the deceased’s subscription.

Evidence was led that the deceased was unhappy with an earlier will referred to as the “October will” which was prepared by a professional will writer. The pursuer gave evidence that the deceased gave the November will to her in February 2005.

“The critical evidence came from the pursuer and Mrs Reid. If I accepted their evidence the pursuer’s case was made out. I should accept that they were credible and reliable witnesses on all material matters. In particular, there was no good reason to doubt Mrs Reid’s evidence. She was an independent witness. She had no reason to lie. There was simply no good basis for accepting the first defender’s contention that she was lying, had committed forgery, and had perjured herself in court.”

“Mrs Reid confirmed that the deceased subscribed the November will on 16 November 2004. She appended her signature as a witness at the same time. She gave her evidence clearly and in a straightforward manner. Her evidence emerged intact from cross-examination. Her reaction to the suggestion that she was not telling the truth was one of real and unaffected astonishment. The explanation which she gave for not agreeing to provide a precognition to the first defender’s solicitors also seemed to me to be genuine.”

“I accept the evidence of Mrs Reid as being credible and reliable. She is independent of the pursuer and the first defender. She has no financial interest in the outcome of the litigation. I formed a favourable impression of her in the witness box. There appears to me to be no good basis for treating her as being other than a law abiding and respectable individual. I reject the suggestions that she has acted in a partisan way, has lied, has colluded in the creation of a false document, and has perjured herself.”

“Without Mrs Reid’s evidence the damage to the document would have appeared to me to have been highly suspicious. With the benefit of her evidence I see matters in a very different light. Her evidence provides very substantial confirmation and support for the evidence of the pursuer. Mrs Reid’s evidence corroborates that the document was indeed signed by the deceased using her married name “Lennie” and that it was dated 16 November 2004. It also corroborates the pursuer’s evidence that the deceased was concerned that the October will might not adequately protect her children; and that securing that her children would be provided for was the motivation for making the November will.”

“I found the pursuer to be a credible witness. With certain qualifications, I also accept that her evidence was reliable.”

The full judgement can be found here.

For those interested in tax statistics: HM Treasury’s “estimated costs of the principal tax expenditure and structural relief’s”.

Interesting to see that the three inheritance tax associated reliefs all show an increase.

Relief for charitable donations increased to £500 million, agricultural property relief increased to £385 million and business associated reliefs to £415 million.

More on this can be found here.