“4 March 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 13th December 2013.

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.

“HM Revenue & Customs (HMRC) have today published:

• new form IHT205 (2011) – Return of estate information [England, Wales and Northern Ireland]
• new IHT206 (2011) – Notes to help you fill in form IHT205 (2011)
• revised form IHT217 – Claim to transfer unused nil rate band for excepted estates

The new forms IHT205 (2011) and IHT206 (2011) Notes should be used when the person died on or after 6 April 2011. The main changes to the form are to the pension’s questions which have been simplified. You will also see the form and notes look different as they have been rebranded.

The revised IHT217 replaces the current version of the form and should be used where the person died on or after 6 April 2010.”

The Forms and Notes can be found here.

Listed below are the taxes, duties and charges that Westminster has so far refused to pass control to the Scottish Parliament.

The England and Wales High Court has stopped a local authority selling an elderly lady’s house to pay for her care fees, because her daughter kept a room in the house and had invested in maintaining it while living elsewhere.

This is from a report of the case from STEP:

“After a long correspondence the case eventually came to court in January. The court’s decision turned on the exact wording of paragraph 2(1)(b)(ii) of Schedule 4 of the National Assistance (Assessment of Resources) Regulations 1992 and whether Glen Walford’s relationship with Sunnydene fell within it. The relevant passage states that the value of any premises is to be disregarded for a residential care fees assessment if it is ‘occupied in whole or in part as their home by the resident’s other family member or relative who is aged 60 or over’. This test is further qualified by Section 7 of the CRAG [Charging for Residential Accommodation Guidance] rules.

Surprisingly, this is the first occasion that this particular issue has come before the courts. In the event, Mr Justice Supperstone, ruled that Worchestershire had applied the test incorrectly by looking at actual occupation or permanent residence at the time of Mary Walford’s admission into care. It had also not properly considered the submissions made by Glen Walford regarding her long-term relationship to the property, to which she ‘has a degree of attachment both physical and emotional’. He duly quashed the council’s decision to impose a charge on Sunnydene, and ordered it to reconsider its assessment.”

This decision is also important for us here in Scotland as similar rules apply.   Guidance on these rules from the Scottish Government can be found here.

More on this from STEP can be found here and the full case report can be found here.

The First-tier Tribunal has held that a deceased businessman’s trading estate management company did not qualify for inheritance tax business property relief as its activities were predominately investment related.

The business owned a plot of land with a disused factory which had been converted into a trading estate with units rented for light industry and offices. As well as letting the land, the family managed the site and provided various facilities for those on the site including electricity, fax services, free parking, a full-time manager on site and a forklift truck and use of a full-time driver.

This is from the report of the decision of the tribunal:

“The non-investment services provided by the Company include the  forklift truck service and the provision of office type facilities. We do not consider that those additional services predominate when considering the activities of the Company as a whole. Even if we were to take out the Burdens side of the business, the real nature of the business remains an investment business exploiting the land by granting tenancies and licences. Most of the income from additional services relates to re-charges for electricity, telephone and postage. The income from the other additional services is very modest compared to the licence fee income. Considering the facts by reference to the nature of the activities and the income produced by those activities puts the Business Centre well towards the investment end of the spectrum.”

The full report can be found here.

I have just read a very interesting article in the latest STEP magazine titled: “Dawn of the iPhone will”.  The article outlines the development of informal wills in Australia and in particular how the Supreme Court of Queensland held that an electronic will saved on to a smartphone should be admitted to probate (confirmation).

As the article states, we are likely to have to increasingly deal with informal wills of the electronic nature in years to come.   This is an issue that we will also have to do deal with here in Scotland.

More generally, a recent talk I gave on “What happens to digital assets on death?” can be found here.

The average person it is claimed now has more than 10 online accounts, including social media, shopping and bank accounts.  These obviously contain a great deal of personal information and have value whether it is financial or sentimental.

What though happens to these assets on death?  If you would like to find out more about this issue please contact: james@legalknowledgescotland.com

The First-tier Tax Tribunal has allowed a claim for principal private residence relief (PPR) in which a couple bought their mother’s flat subject to her right to continue occupying it.  The tribunal decided this was an interest in settled property, i.e. trust property under s.68 of the Taxation of Chargeable Gains Act 1992.

This is from the case report and outlines the background to this matter:

6. The Flat was purchased by Mr Wagstaff’s mother (“Mrs Barbara Wagstaff”), in
1990. On 6 February 1996 she sold and transferred the Flat to the Appellants for
30 £45,000. The price was based on a valuation report of 14 October 1994. The report
was not before us and we heard no evidence regarding the valuation either at the time
that it was given or in respect of the sale which took place some 15 months later.
HMRC had nevertheless accepted the price as an arm’s length price.

7. The sale was subject to the terms of an agreement of 6 February 1996 (“the
35 Agreement”) between the parties under which Mrs Barbara Wagstaff was entitled to
continue living at the flat at no cost for the remainder of her life or until her
remarriage, subject to payment of £5,000.

8. Mrs Barbara Wagstaff continued to occupy the property until 2005. In August
2005 she had knee replacement surgery, following which she returned to the Flat.
40 Within a week, however, she fell down stairs, seriously injuring the replacement joint, 3
and had to be returned to hospital. She was not released from hospital until
November 2005 when she went to live with the Appellants pending the arrangement
of more suitable long term accommodation. The Flat remained available for her use
with her furniture and belongings in situ until she moved into a new single storey,
5 stair-free home in June 2006. Thereafter the Flat remained empty until it was sold (by
way of an arm’s length third party sale) with her agreement on 16 March 2007.”

The taxpayers submitted a claim under section 225 of TCGA 1992 on the basis that their ownership of the flat was subject to a trust and the flat was settled property which qualified for PPR.   HMRC refused the taxpayers’ claim for PPR.

The full report can be found here. 

Inquiry by the Scottish Parliament’s Economy, Energy and Tourism Committee into Scotland’s Economic Future Post-2014 

Please find following my written evidence.

By way of background I am a partner in and co-founder of Legal Knowledge Scotland, immediate past Convener of the Scottish Borders Chamber of Commerce, a former trustee of Reform Scotland and co-author of its “Fiscal Powers” and “Devo plus” papers.  I have written extensively on the fiscal powers debate and in particular on how we might create a simpler, more efficient and effective Scottish tax system.

I only wish to make three points to this inquiry.

Firstly, if Scotland votes ‘NO’ it will be extremely difficult to persuade Westminster to devolve any let alone substantial powers to the Scottish Parliament.  For evidence of this simply consider what was proposed by the Calman Commission, the reaction to it by the then UK Labour and subsequent coalition governments and what was actually delivered by the Scotland Act 2012.

The chapter I wrote for the recent Hassan/Mitchell book: After Independence titled “The continuing battle for Scottish tax powers” outlines this argument in more detail.   A link to this chapter can be found here.

Secondly, even if you are able to persuade Westminster to devolve even relatively minor powers it will be at least a decade before the Scottish Parliament can make use of these powers.  In addition, it is likely that Westminster and other vested interests will use this time to water down any proposal.  For evidence of this again note the Calman timeline.  A link to an article I wrote on this issue can be found here.

My third point concerns the Scottish Government’s White Paper on independence.  Three of the tax related priorities are:  reduce Air Passenger Duty (APD) by 50%, set a “competitive” corporation tax rate and design a more efficient tax system.

Whilst I have no real issue with these priorities and in particular designing a more efficient Scottish tax system, I do feel that the Scottish Government is not being radical enough.  Personally I would have argued for abolishing two or even three of the minor taxes such as stamp duty on shares, APD and possibly even CGT.

Why am I arguing for this?  If we are serious about creating a simpler, more efficient and effective Scottish tax system we need to start removing some of the clutter.  That is best done by abolition not tinkering.   Does an independent Scotland need over 25 taxes, charges and duties?  Of course not.  Does Scotland need a separate Stamp Office, Registers of Scotland and Companies House?  Of course not.

In addition consider for a moment how an announcement such as this would be perceived throughout Europe and also further afield.  I suspect that the way Scotland is viewed by many may change or at least be reconsidered.

James Aitken, 26 January 2014

The Scottish courts can authorise a solicitor to execute a will on behalf of an adult who lost capacity after expressing his or her testamentary intention.  Appropriate evidence must also be produced to justify such an intervention order.

This is from the judgement:

“The views formed by the Sheriff Principal on the main issues raised by this appeal (heard without a contradictor) may be summarised as follows:-

(i) An intervention order authorising the execution on behalf of a WI person of a will may competently be granted by the court under the Adults with Incapacity Act 2000 in appropriate circumstances.

(ii) The sheriff was correct in thinking that he could not proceed to grant such an intervention order solely by reference to the principles set forth in section 1 of the said Act but that he had to consider also whether the WI adult had capacity to give instructions regarding preparation of a will.

(iii) The sheriff was incorrect in determining the question before him solely (or almost solely) by reference to an oral submission made to him by a mental health officer at the bar of the court.

(iv) In order to justify the granting of an intervention order such as that sought here by the pursuer the court has to be satisfied on appropriate evidence that the WI adult had testamentary capacity when he expressed a testamentary intention which remains the same at the time of granting that order.”

An article on this matter from the Law Society of Scotland journal can be found here.

The full judgement can be found here.

My first tax and fiscal powers blog of the year.

Let’s start with the fiscal powers debate.  I thought it was interesting but not surprising to see that Jim Gallagher has joined the “NO” campaign.  Anyone who was involved with the Calman Commission, which he played an integral part in, knows his views on devolving substantial tax and welfare powers to the Scottish Parliament.  I suspect the ‘NO’ campaign were disappointed that it was his previous comments on Scotland’s European Union membership that received the most publicity and not the fact he has joined the ‘NO’ campaign.  More on this can be found here.

Now to tax powers already held by the Scottish Parliament.

John Swinney has presented his final Budget before the independence referendum.  On business rates he announced: “£77m over two years to further enhance the competitiveness of the Scotland’s business rates regime”.  More on this can be found here and here.  The Scottish Government’s policy of a freeze on Council Tax bills continues to spark debate.  The differing views of the Scottish Government and Scottish Labour can be found here.  One other and not unexpected announcement was that the Scottish Government is ending the “alcohol surcharge”.  More on this can be found here.

Now to the future.  Let’s start with the White Paper.

The Scottish Government’s White Paper can be found here.  The tax proposals can be found on pages 117 to 123.   Three of the tax related priorities are:  reduce Air Passenger Duty (APD) by 50%, set a “competitive” corporation tax rate and design a more efficient tax system.

Whilst I have no real issue with these priorities and in particular designing a more efficient Scottish tax system, I do feel that the Scottish Government is not being radical enough.  Personally I would have argued for abolishing 2 or even 3 of the minor taxes such as stamp duty on shares, APD and possibly even CGT.

Why am I arguing for this?  Firstly, if we are serious about creating a simpler and more efficient Scottish tax system we need to start removing some of the clutter.  That is best done by abolition not tinkering.   Does an independent Scotland need over 25 taxes, charges and duties?  Of course not.  Does Scotland need a separate Stamp Office, Registers of Scotland and Companies House?  Of course not.

Secondly, not only would this free up resources, it would send a clear message.  How Scotland is viewed  on independence is very important.  A clear statement of intent is needed and that should include abolishing a number of taxes.

More on the APD proposal can be found here.

Now to the Revenue Scotland and Tax Powers Bill.  The Bill provides a legal framework for the collection of taxes devolved under the Scotland Act 2012, and gives this responsibility to a new tax authority, Revenue Scotland.  In short, the beginnings of a Scottish tax system.  More on this can be found here.

I was also interested to see that HMRC plans to develop new digital services.  This is the kind of thinking those creating a Scottish tax system need to embrace.  More on this can be found here.

Now to matters slightly further afield and to some good news for the Hollande government.  The 75% top rate of tax proposal has finally been approved.  The initial proposal to tax individual incomes was ruled unconstitutional by the Constitutional Council almost exactly one year ago.  But the government modified it to make employers liable for the 75% tax on salaries exceeding 1m euros (£830,000).  More on this can be found here.

Staying with France.  The following Ernst & Young report shows the wide ranging role of France’s Constitutional Court in regard to taxation.  For example it stopped the Hollande government from widening the scope of the general anti abuse rule from ‘exclusively’ to ‘mainly tax driven’ transactions, and blocked the mandatory disclosure of tax planning schemes. The report can be found here.

Now for a bit of sport.  The European Commission is investigating whether the Spanish Government gave unfair tax reliefs to Spanish professional football clubs, including Real Madrid and Barcelona.  More on this can be found here.

The Canada Revenue Agency has published a warning to ‘snowbirds’ that it will consider them Canadian tax-resident no matter how long they spend in the US, if they maintain residential ties in Canada and do not obtain US permanent residency.  More on this can be found here.

Another interesting proposal from the Canadian Government.   They are going to pay people who inform on major international tax evasion, with pay-offs of up to 15% of the extra tax collected. More stringent monitoring of international bank transfers is also being introduced.  More on this can be found here.

And finally to China.  Documents obtained by the so-called International Consortium of Investigative Journalists from company service providers in the British Virgin Islands suggest that relatives of some of China’s governing elite have set up offshore companies.

This is from the following article: “As neither Chinese officials nor their families are required to issue public financial disclosures, citizens in the country and abroad have been left largely in the dark about the elite’s use of offshore structures which can facilitate the avoidance of tax, or moving of money overseas. Between $1tn and $4tn in untraced assets have left China since 2000, according to estimates.”

“China’s rapid economic growth is leading to a degree of internal tension within the nation, as the proceeds of the country’s newfound prosperity are not evenly divided: the country’s 100 richest men are collectively worth over $300bn, while an estimated 300m people in the country still live on less than $2 a day. The Chinese government has made efforts to crack down citizens’ movements aimed at promoting transparency or accountability among the country’s elite.”

Twas ever thus.  More on this can be found here.