To be a good tax adviser you need not only to have the right qualifications, and the best is to be a member of the Chartered Institute of Taxation, but you also need a good dollop of common sense and legal knowledge.
One succession plan I was asked to review involved a married couple John and Jane. Both had been married before. John had two boys, Jason and Kenneth and Jane two girls Mary and Susan with previous relationships. The succession plan drawn up for them was that the estate of the first to die was to be set aside to pay the income to the survivor. If John was to die first his estate – which is considerable, would be set aside for Jane and as trustee she could at any time, decide to cut out Jason and Kenneth. John’s wealth accumulated over his lifetime would then go to Jane’s children on her death. John was horrified. However the situation was easy to remedy. John and Jane simply needed to revoke their Wills and rewrite them specifying to whom their estate should be left on the death of the surviving spouse.
Rewriting Wills is easy; however restructuring offshore structures for non UK doms is not always so straight forward.
Last week I was asked to look at a letter of advice written for Aditya who has an offshore trust which owns his extensive businesses across the world through a network of companies. Within the structure he also owned his home in St John’s Wood worth in excess of £15 million. The advice given to Aditya assumed that the company which owned his home held it as a nominee and therefore despite having paid ATED in 2013, he had not paid ATED in 2014 and 2015.
I asked the trustee to provide the evidence that the property was held as a nominee – there was none. I then asked who, on the sale of the property, would receive the proceeds the company or the trustee. If it was the trustee would the property be available for creditors if there was a claim against one of the businesses owned by the trustee?
Furthermore the trust was set up in December 2006, if the property was held direct by the trustees would they be paying the ten year charge in December 2016? Aditya had not been told about the ten year charge.
My advice to Aditya was to accept that the company owned his home beneficially and to pay the tax for 2014 and 2015. He should then plan to mitigate Inheritance tax and transfer the property out of the company before 1st April. HMRC would no doubt want to raise interest for late payment, but may not raise penalties given the fact that Aditya was following advice. HMRC could also decide to go against his adviser for fines for assisting Aditya in evading tax.
Aditya is able to rectify the position without too much trouble and before HMRC investigates. What worries me however is the exposure of tax advisers who may not have been properly trained to analyse the legal nature of a structure and have given advice based on wrong assumptions. Not only could they be pursued by HMRC for assisting in the evasion of tax, but could also be sued by their clients for misadvising.
HMRC is not kind, it cares little whether a taxpayer was misadvised, or that the adviser was negligent in finding out the true nature of the structure. It needs to collect tax and is determined to stamp out evasion regardless of how innocent it may have been.
If you would like to book a meeting with us please contact Svetlana on 020 3740 7423 or at firstname.lastname@example.org