The case of M. Ross (Dec’d) v HMRC highlights the kind of activities that the courts will look at when determining whether a Furnished Holiday Let (FHL) is a business for the purposes of Business Property Relief (BPR), thereby obtaining 100% relief from inheritance tax. The case revisits principles established in the Pawson and Green cases which were also in relation to the availability of BPR on FHLs. A review of these cases may be found here. In both previous instances, BPR was denied on the basis that the services provided in relation to the running of the FHLs was not sufficient enough to be regarded as trading income, a requirement for BPR to apply. The Facts Marjorie Ross's estate contained a 2/3 share of the Green ...

Click here to download Issue 3, 2017 of the Personal Tax Newsletter. This issue contains details of the Summer Finance Bill 2017,  provides some insightful statistics on Income Tax, and reviews a recent case concerning maintenance payments from a Will.

The decision previously announced by the government to change probate fee charges has now been scrapped. The reason behind this appears to be the snap general election, with the notice from Newcastle District Probate Registry, stating: 'There is not enough time for the Statutory Instrument which would introduce the new fee structure to complete its passage through Parliament before it is dissolved ahead of the general election. This is now a matter for the next Government.' The draft regulations had proposed a new charging structure which would have seen vast increases in the amount payable by larger estates. The changes had been criticised as they were felt to be unfair, unpractical and more akin to a tax than a fee, therefore the scra...

Finance Bill 2017 has introduced a number of changes which will affect the Inheritance Tax (IHT) exposure of non-UK domiciled taxpayers who hold UK residential property though offshore structures. As a part of these changes, new rules will ‘see through’ to residential property held via offshore close companies and will be included in the non-domiciled individual's estate for IHT purposes. Overview of Current Rules For non-domiciled taxpayers, IHT will normally only be charged on UK situs assets (i.e. assets in the UK). Property outside the UK is normally excluded from IHT where the individual beneficially entitled to it is domiciled outside the UK. Domicile is a common law concept and broadly refers to the country w...

HMRC has quietly made a major change that will allow personal representatives to deal with the tax affairs of estates more simply in future. Normally when a person dies, the personal representatives of the deceased will need to settle any tax liabilities. If the deceased was already registered for self assessment, this could mean filing at least two tax returns in the tax year of death: one for the period from 6 April up to the date of death and one for the period of administration. In practice HMRC will allow personal representatives to informally settle the tax liabilities for the period of administration where: Total income tax and capital gains tax is no more than £10,000; The estate was worth no more than £2,500,000 on de...

The recent case of Ilot v the Blue Cross and others has raised important questions for English inheritance law.  The Supreme Court’s decision largely upholds the rights of taxpayers to bequeath their assets as they see fit, however the judges also stressed that competing obligations can arise in such cases and the law provides little guidance on how the Courts should balance them. Background Mrs Jackson (“the mother”) died in July 2004 after a long estrangement with Mrs Ilott (“the daughter”) and left the bulk of her £486,000 estate to charity, deliberately disowning her daughter in the process. The daughter had lived independently from her mother for over 25 years and currently lived with her husband and four children. T...

From 6 April 2016, the Personal Savings Allowance (PSA) was introduced to enable basic rate taxpayers to receive up to £1,000 of savings interest tax free. Higher rate taxpayers will be able to receive up £500 tax free. As a result of this, banks, building societies, and National Savings and Investments (NS&I) will no longer deduct 20% tax  on interest paid to account holders as most taxpayers will not be liable to tax on this income. The PSA is available to individuals only, therefore trustees and personal representatives who previously did not complete a tax return or made informal payments to HMRC may incur new reporting burdens. In light of this, HMRC have announced interim arrangements regarding trustee returns, returns f...

Inheritance tax (IHT) is levied on chargeable transfers  that reduce the value of a taxpayer’s estate, both in their lifetime and on death. The rates of IHT for transfers in excess of the nil rate band (£325,000 for 2016/17) and Main Residence Nil Rate Band is 20% for lifetime gifts and 40% on death. By 2020/21 a married/civil partnered couple will be able to transfer assets worth £1m without triggering IHT. For those whose assets exceed these limits, lifetime gifts can make a significant IHT saving. Specific rules apply to the following types of transfers made in a person's lifetime: Exempt Transfers, Potentially Exempt Transfers, and Chargeable Lifetime Transfers. Exempt Transfers The following transfers made during a p...

The death of an individual can understandably be a difficult time, however tax obligations, such as the requirement to file tax returns and pay the tax due on behalf of the deceased, do not cease upon death. The tax liabilities can be split into two parts: the deceased’s tax affairs up to the date of death; and the period of administration (i.e. the period following death up until the date that estate is distributed). Part 1: Tax affairs up to the date of death On the death of an individual, it is the personal representatives’ responsibility to file a tax return disclosing all income received by the deceased taxpayer from 6 April up to the date of death. Income Tax Income tax will be charged as normal on all taxable inco...

As discussed in our blog Inheritance Tax - Introduction of Main Residence Nil-Rate Band, from 6 April 2017 homeowners who leave their home to a direct descendent will be entitled to a 'main residence nil-rate band', effectively raising their inheritance tax threshold. The Finance Bill 2016 provides that where an individual: a)      downsizes to a property with a lower value; or b)      disposes of their home so that the estate no longer includes a residential property a 'downsizing addition' will be available to ensure that the value of the main-residence nil-rate band is not lost. The downsizing addition will be available provided that assets of an equivalent value of the property disposed of, up to the value of the ad...