“Power of Attorney (PoA) Update – Manual Submissions

There is currently a 15 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 2nd October 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.”

“Turnaround Time for Annual Reviews

There is currently a 14 – 16 week waiting period for annual accounts to be reviewed. We apologise for any inconvenience the delay may cause financial guardians

The Annual Review Team are currently working with accounts received on and around 30th September 2013. Financial guardians who have queries regarding their accounts or the waiting time may contact opgreviewteam@scotcourts.gov.uk.”

More on this can be found here.

The England and Wales Court of Appeal has unanimously rejected HMRC’s assertion that a mother’s gift of a leasehold flat to her sons was a “gift with reservation of benefit” because the underlease contained covenants in her favour.

This ruling overturns the decisions of both lower tribunals.

“On 5 June 1996, Parkside Knightsbridge Limited, the superior landlord, granted Mrs Kamhi a lease, the Headlease, for a term of 100 years less one day, from 25 March 1994, of a flat in Knightsbridge, London at a premium of £250,000. The Headlease contained a term for payment of rent and a service charge of 3%. The tenant, Mrs Kamhi, covenanted to pay rent and, as additional rent, the service charge and advance service charge. There were other covenants, such as to keep the property in repair, to clean the premises and its windows, to indemnify the landlord against outgoings, to keep the flat decorated and to repay a proportion of the cost in relation to maintenance and cleaning of common areas.”

In 1997 she created a trust for her two sons and granted the trustees an underlease to the flat for their benefit for the remainder of the headlease term. The only trust property was the underlease.  Like the headlease, the underlease imposed covenants on the leaseholders to pay ground rent and service charges and to keep the flat in good condition.

“This appeal turns on the question whether those Tribunals were correct to conclude that the Underlease was not enjoyed to the entire exclusion, or virtually entire exclusion, of a benefit to the donor, by reason of positive covenants entered into by [the trust company] with Mrs Kamhi, which mirrored the covenants into which she had entered in her Head Lease.”

The case report can be found here.

In this case Mr Moore moved into a property that had previously been let out following his separation from his wife.  Several months later he purchased a property with his new partner and sold the property he had been living in since the separation.

HMRC denied CGT Principal Private Residence (PPR) relief.  PPR relief applies where a person has at any time lived in the property as their sole/main residence. The gain attributable to the last 36 months of ownership will automatically be exempt from CGT.  From April 2014, this will be reduced to 18 months.

The question was whether his occupation of the property he had sold had the necessary degree of permanence, continuity or expectation of continuity.  The tax tribunal held that it did not.

In making their decision the tribunal made particular reference to the lack of evidence, other than council tax bills, regarding the taxpayer’s occupation. Other correspondence went to both his former home and the home of his new partner.  Whilst the tribunal accepted that he had lived in the property, they felt that the lack of evidence suggested that he did not intend to live in the property permanently.

The full judgement can be found here.

A daughter’s decision to move her 88-year-old mother from England into a Scottish care home gave rise to a complex dispute between her children about the jurisdiction of England’s Court of Protection and our Sheriff Court and also a judicial analysis of the meaning of habitual residence in the light of the 2000 Hague Convention on the International Protection of Adults.

It was agreed between the parties that the mother did not have capacity to decide where to live.

Two statements stand out in the decision:

“Habitual residence is, in essence, a question of fact to be determined having regard to all the circumstances of the particular case.  Habitual residence can in principle be lost and another habitual residence acquired on the same day: … “

“In the case of an adult who lacks the capacity to decide where to live, the habitual residence can in principle be lost and another habitual residence acquired without the need for any court order or other formal process, such as the appointment of an attorney or deputy.”

The court found that the mother was not “habitually resident” in England and Wales and therefore in favour of the jurisdiction of the Sheriff Court.

The full judgement can be found here.

Merry Christmas from Legal Knowledge Scotland.

Thank you for all your support during our third year and best wishes for 2014.

HMRC are planning to launch an online inheritance tax service during the 2015-16 tax year. This will allow executors and their representatives to submit IHT accounts via the internet. Interestingly the announcement also refers to “probate” but not “confirmation”. That may mean that it simply did not occur to those making the announcement to consider the situation in Scotland, or as confirmation is primarily a devolved matter that part of the announcement does not apply to Scotland.

That said this is a positive development. More detail will hopefully follow soon and this may mean the beginning of the end for paper inheritance tax forms.

The announcement can be found here (need to scroll down to the the bottom of the page).

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 

Rumbelow & Rumbelow v Revenue & Customs [2013] UKFTT 637 (TC)

In the first case Mr and Mrs Rumbelow left the UK to set up home in Belgium, as a prelude to semi-retirement and with a view to becoming non-resident in order to shelter their UK property from Capital Gains Tax (CGT).   The issue was whether in the tax years in question they remained resident in the UK and were therefore subject to UK CGT.  Mr and Mrs Rumbelow lost because of the ties they retained with the UK.  This tribunal used evidence of cash withdrawals, debit card purchases and records of their business transactions to track their movements during this time.  These showed that their visits to the UK were more frequent and extensive than they had described.  They also kept a taxed and insured car at their fully furnished Cheshire property where they stayed on their UK visits.  The Rumbelows lack of detailed records also hindered their attempts at showing they were non-UK resident during the years in question. The full decision can be found here.

Gibson v Revenue & Customs [2013] UKFTT 636 (TC)

In the second case Mr Gibson demolished his home and built a new house on the site.  HMRC denied principal private residence relief on its disposal.  Even though Mr Gibson had been “camping” for several months in his new house while the building works were going on the Tax Tribunal ruled that this did not amount to residence.  The full decision can be found here.

“Turnaround Time for Annual Reviews

There is currently a 14 week waiting period for annual accounts to be reviewed. We apologise for any inconvenience the delay may cause financial guardians.

The Annual Review Team are currently working with accounts received on and around 12th August 2013. Financial guardians who have queries regarding their accounts or the waiting time may contact opgreviewteam@scotcourts.gov.uk

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 22nd August 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.

I am concentrating on one matter in this “tax land” and that is the publication by the Scottish Government of its latest independence paper: “Principles for a Modern and Efficient Tax System in an Independent Scotland”.  The paper can be found here.  I prefer my title for this paper found above.  

It is a good paper and makes a number of sensible suggestions.  If you do not have time to read the whole paper I would recommend you take the opportunity to read the “Executive Summary” and also the “Summary of Recommendations”.

For ease of reference I have copied part of the “Executive Summary” below as well as adding a number of comments.

“Under the current constitutional framework, the Scottish Parliament is responsible for around 7% of all taxes raised in Scotland (including a geographical share of oil). This will rise to 15% with the introduction of new responsibilities flowing from the Scotland Act 2012.”

This is a point that the ‘YES’ campaign needs to keep repeating.  The ‘NO’ parties often claim that a substantial amount of power is being devolved under the Scotland Act 2012.  This is clearly nonsense.  Only two minor taxes are being devolved and the Scottish Parliament’s control over income tax will only increase slightly.  This only gives the Scottish Parliament control of four minor taxes and partial control of income tax.  This hardly gives the Scottish Parliament substantial tax powers when you consider there are approximately 25 taxes, charges and duties.  Finally on this point.  Do not forget that Calman began its work in 2007 but the powers are not being devolved until 2015 and 2016.

“Independence would provide full control of all taxation and expenditure levers in Scotland with autonomy over tax design, collection and implementation. The requirement to establish a new tax system post-independence provides an opportunity to re-examine the tax framework as a whole and to design a system based upon specific Scottish circumstances, preferences and principles but also with modern technology and data collection in mind.”  

This is very important.  One of the most disappointing aspects of the ‘NO’ parties involvement in the fiscal powers debate has been their complete lack of interest in devolving control of those tax powers that would complement the powers already held by the Scottish Parliament.  This would have given the Scottish Parliament a substantial number of economic levers and also the chance to develop policy in a more effective way.  For example, health is devolved but alcohol and tobacco duties are not.

In addition VAT can only come under the control of the Scottish Parliament if Scotland votes ‘YES’.

The debate surrounding a new Scottish tax system should also include whether any taxes should be abolished.  For example, air passenger duty and stamp duty on shares. I also look forward to seeing in more detail how we might improve how our taxes are collected and also how tax advice and assistance is provided.  I have long argued that we need to create local advice offices. These could be located in each local authority area. Scotland also does not need a separate Stamp Office, Registers of Scotland and Companies House. “Specific Scottish circumstances, preferences and principles” should also include taking into consideration Scots law.

“A re-designed Scottish tax system could represent a major competitive advantage, offering a more robust and efficient tax system than key competitors.  A number of objectives will need to be considered –     

o Designing a modern and efficient system

o Delivering an effective macroeconomic framework

o Promoting competitiveness, economic growth and tackling inequalities

o Implementing and managing the transition to full autonomy

o The European and international context”

“A tax system which follows the principles of simplicity, neutrality, stability and flexibility, will minimise administration and compliance costs, maximise tax-take and boost investment and growth.”

There is no doubt a “re-designed Scottish tax system could represent a major competitive advantage. Control of a few minor taxes and partial control of one major tax is all very well but does not give the Scottish Parliament the economic tools it so clearly needs.  Taxes are not looked at in isolation by individuals and businesses alike. The underlying law is also crucial in this regard.  The power to only vary a tax rate is in effect almost no power at all.

The fact that this point is so self-evident is I suspect one of the major reasons why the devolving of substantial tax powers is so fiercely resisted by Westminster and in particular HMRC and HM Treasury.

 “To follow these principles, a balance will be required between the different broad methods of taxation – income, expenditure and wealth taxes – and how, within these taxes, individual elements are structured and developed.”

This debate needs to include looking at where and in what proportion taxes are applied. For example between individuals and businesses.  The recent spat between the energy companies and the UK Government is an example of how this should not be done. In addition it should also be made clear if a tax is primarily a means to raise revenue or to change behaviour, or even a mixture of the two.

“As the report makes clear, the tax system – in conjunction with other policies such as welfare and general public service provision – can be used to shape outcomes that reflect the socio-economic vision of a country. It also plays a crucial role in any macroeconomic framework.”

That is a crucial point.  The new Scottish tax system needs to be developed alongside a new Scottish welfare system.  That includes how we provide advice in both of these areas. This is an area where a new Scottish system can improve hugely on the present system.

 “Transition to a new tax system will take time. The UK tax system is complex and costly, and studies have shown there is considerable room for improvement in its design and operation. It is vital that such a transition is handled smoothly. The Scottish Government should develop a clear plan for how it will migrate, over time, towards the development of its own modern Scottish specific tax system.” 

I have long argued that the Scottish Government should clearly state that they will retain the majority of the present tax system for a number of years. This will ensure a degree of certainty and stability during which time the debate can begin as to how we will create a Scottish tax system and also how it will look. It may be that the Scottish Government wishes to make a small number of immediate changes on Scotland gaining independence such as to a particular tax rate or abolishing stamp duty on shares.  That is only to be expected.

The most enjoyable aspect of reading this paper was for me the fact that the debate about what a Scottish tax system might actually look like has started.  There shall be a Scottish tax system.