Routier & Anor v Revenue And Customs [2014] EWHC 3010 (Ch) – denial of inheritance tax charitable relief

A legacy left to a charitable trust by a Jersey resident testatrix has been denied UK inheritance tax relief.  The England & Wales High Court held that the Inheritance Tax Act 1984 contains an implied requirement that a qualifying charitable trust must be governed by the law of some part of the UK.

The full case report can be found here.

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Value of ‘works of art’ accepted in lieu of IHT in each of last five years

The total value of cultural items accepted by HMRC under the inheritance tax acceptance-in-lieu scheme for the five years from 2009 to 2013 was just under £125 million. Almost half of which came in the final year.

Full details can be found here.

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Consultation on inheritance tax exemption for emergency service personnel

The UK Government has published a new consultation on extending the inheritance tax exemption for armed forces personnel to all emergency service personnel who die in the line of duty.

The consultation can be found here.

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Gilchrist v HMRC [2014] UKUT 0169 (TCC) – Upper Tax Tribunal not bound by precedent set by England & Wales High Court

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 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.

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Estimated costs of the principal tax expenditure and structural reliefs

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.

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New Inheritance Tax Forms IHT205 (2011), IHT217 and IHT206 (2011) Notes

“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.

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Best v HMRC, 2014 UKFTT 077 TC – inheritance tax business property relief case

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.

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Buzzoni & Ors v Revenue & Customs, Re the Estate of Lia Kamhi (Deceased) [2013] EWCA Civ 1684 “gift with reservation of benefit”

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.

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Another few weeks in “tax land”

Where to start.  Given it is now just over a year to the referendum that seems a suitable place to start.

There is increasing discussion, mostly criticism, concerning the failure of the ‘NO’ campaign to come up with a credible proposal for substantial additional powers for the Scottish Parliament. That said, the likelihood of a joint proposal from the ‘NO’ side is extremely unlikely.  Some want powers removed from Scotland in the event of a ‘NO’ vote.  Some do not want any more powers devolved to Scotland and insist that in any case that is a decision for the whole of the UK.   Even those who argue for greater powers for the Scottish Parliament are only arguing for three or four relatively minor tax powers.  Two of my earlier bogs on this issue outline the proposals in more detail and also how these extremely modest proposals would not take effect for at least a decade.  These blogs: “Tax powers so far refused by Westminster” can be found here and “Likely timescale for additional Scottish tax and fiscal powers” can be found here. Substantial welfare powers are of course not even being considered by the Unionist parties.    

A good example of how few powers are being considered can be found in this interview of Michael Moore.  The article on this can be found here.  It is worth noting that this is the view of the Liberal Democrats supposedly the strongest advocate of increasing the powers of the Scottish Parliament.

Another factor of this debate that as yet is not being widely commented upon are the anomalies that can arise under devolution.  Take for example inheritance tax.  Inheritance tax is controlled by Westminster but succession law and social care are controlled by Holyrood. Does that make any sense?  Of course not.  With this in mind please see the following article from the Scotsman which can be found here.

Now to specifically Scottish tax matters.

A “Revenue Scotland and Tax Powers Bill” will establish a new authority for the collection of devolved taxes from 2015.  The First Minister described this as a “historic step”, but also just a “first-step” – since Scotland would still only collect 15% of all taxation revenue and the Parliament would remain a “spending chamber rather than a revenue raising chamber”.  More on this can be found here.  This is an important landmark in the creation of a Scottish tax system.

No-one I suspect was surprised at this announcement.  “Scottish and Welsh red meat levy bodies are unlikely to recoup levy money lost when animals are slaughtered in England, UK farm minister David Heath has said.”  More on this can be found here.  This type of argument, in short Westminster knows best, has of course been made many times before.  Some matters where this argument has been used include: fossil fuel levy, attendance allowance, VAT and the new Scottish police and fire services, energy transmission charges, mobile phone coverage, delivery charges and local income tax.  The UK Government’s attitude to relatively minor issues such as the so called “meat levy” simply adds to the doubt that the UK Government will act in a positive way to calls for further powers to be devolved in the event of a ‘NO’ vote.

The Scottish Parliament’s Finance Committee has welcomed proposed new legislation which will see Scotland take responsibility from the UK Government for landfill tax.  The Committee also welcomed proposals to impose landfill tax on unauthorised disposals to landfill following the identification of illegal sites and to increase the credit limit on contributions to the Landfill Communities Fund, which provides funding for community or environmental projects in areas affected by landfill sites.  More on this can be found here.

Now to the “bedroom tax” or to give it it’s Sunday name, “spare room subsidy”.

Social housing residents affected by the UK Government’s “bedroom tax” may be able to appeal depending on the size of their spare room, after a tribunal ruled the size of a room has to be taken into account when imposing the controversial policy.

The UK Government has played down the implications of the ruling.  A spokeswoman for the Department of Work and Pensions said: “It is simply not affordable to pay housing benefit for people to have spare rooms, and our reforms in the social sector mean families receive help for the number of bedrooms they need, and these are exactly the same rules as in the private sector.” Meanwhile, a United Nations special investigator has described the bedroom tax as a “shocking” policy which could constitute a violation of the human right to adequate housing.

More on this from the Scotsman can be found here and the Guardian here.  This policy, it is argued, shows the widening gap on welfare matters between Holyrood and Westminster.

Now to the tax avoidance debate. Let’s start with some irony.  An adviser to HMRC has had to resign as a result of an investigation by the BBC.  The irony is the BBC’s own attitude to severance payments and tax avoidance schemes involving its own staff.  More on this can be found here.

Further evidence as to how we are definitely not “all in this together”.  Top civil servants are having some tax paid using public money, a newspaper investigation has revealed.  More on this can be found here.

And finally on tax avoidance. “It is not possible to construe a director’s duty to promote the success of the company as constituting a positive duty to avoid tax.”  The legal advice quoted may well turn out to be one of most important contributions to the tax avoidance debate.  More on this can be found here.

Now to matters further afield.

In response to a question asked in the Spanish parliament, the Spanish Government was obliged to disclose the amount of unpaid tax owed by professional football clubs in the country’s top two divisions. The sum was a staggering €663,876,441 (about £575m).  More on this can be found here.

The number of Americans renouncing their US citizenship has jumped by a factor of six in 2013, according to official figures. The reason is generally accepted as the difficulties caused to expatriates by the soon-to-be-active “Foreign Account Tax Compliance Act”, in conjunction with the USA’s extra-territorial taxation system.  More on this can be found here.

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Latest HMRC Trusts and Estates newsletter

The latest HMRC Trusts & Estates newsletter can be found here.


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