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How to efficiently gift business assets

For certain individuals, business assets can form a significant portion of their wealth and so considering how those assets might be passed to the next generation often forms a key part of their estate plan. Business assets can benefit from …

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US/UK giving

Considering the UK tax rules on lifetime gifts can be complex, but having to marry these with the corresponding US rules if the donor and/or recipient are also US taxpayers can make the task yet more difficult. A donor can …

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How women can prepare for their greater exposure to IHT

Given that women on average live longer than men, it is more likely that women will inherit significant wealth from their spouses and other family members than their male counterparts. As a result, a recent study states that women have …

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Lifetime Giving | Trusts and School Fees

Many families contend with paying school fees running into hundreds of thousands of pounds per child over the course of their education. This guide examines some tax efficient arrangements that other family members (typically grandparents) can use to contribute to …

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Gifting in the Arts (CGS v AIL)

The Arts Council England saw a record-breaking year in 2020 with the value of cultural objects and art entering public ownership equating to an impressive £64.5 million with £40 million of tax liabilities being settled in return. Philanthropic giving of …

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How can I help my children buy a house?

The Bank of Mum and Dad supported more than half of first-time buyers under the age of 35 in 2020 and is the sixth largest lender in the UK. The average amount provided by the Bank of Mum and Dad …

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How should I approach charitable giving?

Charitable giving should always be encouraged. However, there are various ways to give to charity, and which is most appropriate will vary depending on the circumstances. Simple donations For small cash donations, particularly those to existing UK registered charities, simplicity …

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HMRC estate administration investigations

An article in the mainstream press has noted that HM Revenue & Customs has taken an additional £274m in inheritance tax (IHT) from its investigations into 5,638 estate administrations in the 2019/20 year. This is the highest in over 4 years and equates to an additional £48,500 of IHT for each estate which has been investigated.Experts have said that this is “due to the complexities of the IHT system” but probate professionals and commentators have instead pointed towards the recent uptake in probate applications submitted by personal rather than professional applicants. It appears that the Probate Registry’s new application procedures, which are now available online, have made it increasingly accessible for lay executors to attempt to file IHT returns and apply for probate themselves, rather than instruct an experienced professional, such as a solicitor, to undertake this work for them.This dramatic rise in investigations undertaken by HM Revenue & Customs and the substantial additional IHT claimed highlights the importance of instructing experienced professionals to undertake this work now, more than ever. Presenting information in the right way to HMRC limits the risk of enquiries and investigations, while it is clear that filing IHT accounts without professional assistance can be a false economy.Collyer Bristow LLP has again maintained its position as a top UK private client law firm in the eprivateclient rankings. Please contact us if you require assistance.

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Domicile Enquiries – Tax Tribunal has jurisdiction to determine domicile in closure notice applications: Henkes v HMRC

Of all Revenue investigations, domicile enquiries are uniquely laborious, time-consuming, and financially and emotionally costly for taxpayers.Frequently, their scope balloons to vast proportions, with lengthy schedules of questions being followed by yet more schedules of questions, and then more still, and more. Many of the details requested have limited or no conceivable relevance to a person’s domicile, but HMRC justifies its approach by claiming that it is “in the information gathering” phase of its enquiry, and because domicile can only be ascertained “in the round”, by examining all aspects of a person’s history and lifestyle. Restraining HMRC only to relevant considerations can be a task of Herculean effort.Superficially, examining a taxpayer’s unique situation “in the round” on the basis of all the available evidence might seem positive: it should, after all, be preferable to the rough justice of an inflexible rule of thumb. But in domicile enquiries, its effect is that of a bludgeon rather than an incisive scalpel.Unfortunately for taxpayers, HMRC seems to consider that the “information gathering phase” of a domicile enquiry lasts from its outset until the point that the investigating officer considers him- or herself ready to make a determination. Too often, that is several years after the enquiry was opened. In the meantime, the taxpayer will have spent large sums on professional advice and suffered unwanted (and, in many cases, unwarranted) intrusion into all aspects of their private lives, which can include re-opening painful memories and explaining complex family relationships.In recent years, HMRC has significantly increased the number and scope of enquiries into taxpayers’ domicile status – especially where the person in question has spent several years resident in the UK. The attraction of taxing a person’s worldwide estate on death at 40% is doubtless a powerful lure for the Revenue.Unfortunately, HMRC’s unwillingness to be satisfied where evidence – other than the taxpayer’s recollection – no longer exists is particularly problematic. It has reached the stage where the prurient prying and sour tone in many domicile enquiries is causing real concern among professional advisers that HMRC’s conduct risks damaging the UK’s reputation among internationally-mobile individuals. And word gets around – especially as some national groups are disproportionately affected.So what is an affected taxpayer to do?Perhaps conscious that HMRC might occasionally over-reach itself, Parliament enacted a specific safeguard: the right for a taxpayer to apply to the Tax Tribunal for an Order directing HMRC to issue a closure notice in an enquiry. This balances the right of HMRC to investigate a person’s domicile with the right of the subject to require a final decision within a reasonable period of time, once sufficient information has been provided. If that closure notice is adverse to a taxpayer, he or she then has a right of appeal to the Tribunal, which can uphold or overturn HMRC’s decision.In the recent Henkes case (Henkes v HMRC [2020] UKFTT 00159 (TC) (Judge Tony Beare)), the Tax Tribunal considered an application by Mr Henkes for a closure notice in HMRC’s domicile enquiry, which, by the time of the hearing, had been open for over three years.What makes Henkes so important is the Tribunal’s decision that it has the jurisdiction conclusively to determine a taxpayer’s domicile in the context of a closure notice application – and not just in a substantive appeal against HMRC’s determination once issued. Moreover, the Tribunal’s determination of a person’s domicile, once made, is binding both on the taxpayer and on HMRC for the tax years in question, and may not be re-litigated in any Court or Tribunal in future proceedings.In so deciding, the Tribunal departed from the decision and reasoning in Levy (Levy v HMRC [2019] UKFTT 0418 (TC) (Judge Andrew Scott)).This case is significant because it brings forward the point at which a taxpayer can expect a determination of his or her domicile, thus – hopefully – shortening HMRC’s enquiry and saving substantial professional costs. The Tribunal did make it clear that it would not be appropriate to determine a taxpayer’s domicile in every such application, and as more appeals follow Henkes the limits of the Tribunal’s willingness to do so should become clearer.Unfortunately for Mr Henkes, the Tribunal decided that he was domiciled in the UK.  But the strategic loss for HMRC – which had argued that the Tribunal did not have jurisdiction to determine domicile in a closure notice application – was much the greater. It is not yet known whether Mr Henkes and/or HMRC will appeal to the Upper Tribunal.In the meantime, taxpayers suffering lengthy and intrusive domicile enquiries should be emboldened by the Henkes decision into requiring HMRC to issue closure notices within a reasonable period, failing which they should take advice about applying to the Tribunal for an Order. In many cases, this could turn out to be an invaluable tool in the taxpayer’s armoury.But the most positive outcome from the Henkes case would be if HMRC changed its approach to domicile enquiries from its present antagonistic model back to the common-sense attitude which prevailed in previous years. One lives in hope!

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Covid-19, Travel Restrictions, and Tax Residence of Companies: OECD Guidance Released

One of the consequences of the lockdowns being implemented in a number of countries – including the UK – as a result of the coronavirus pandemic is that normally internationally-mobile company directors find themselves stuck in one jurisdiction, unable to leave (or, at least, to do so whilst following official advice).The personal consequences for affected individuals (such as enforced separation from family and colleagues) might seem bad enough – and that is where thoughts inevitably first turn.Compounding that, are the personal tax implications. Though many countries have issued general guidance indicating that days spent during an enforced stay ought not to be counted when assessing whether a person is resident in that jurisdiction. For the UK Government, HMRC has issued such guidance, confirming that the “exceptional circumstances” provisions of the statutory residence test should apply, which is much to be welcomed: see here.However, less attention has been given to the tax residence status of companies as a result of directors finding themselves stuck.Like many countries, the UK treats a business as being resident in the UK if its place of “central management and control” is in the UK (provided that no applicable double tax treaty establishes its residence in another jurisdiction). Unlike the statutory residence test for individuals, these rules have been developed by case law over a long period of time (the leading case, De Beers Consolidated Mines Ltd v Howe (Surveyor of Taxes), dates back to 1906).The “central management and control” of a company is the jurisdiction in which its strategic policy and management decisions are taken. Those decisions can be contrasted, for example, with less strategic operational decisions, and also the execution and implementation of decisions already taken elsewhere.Directors forced to remain in the UK might not think twice about continuing their involvement in the business. E-mail, mobile phones, and video conferencing mean it has never been easier to work wherever you are. However, if that place is in the UK then care should be taken to avoid HMRC treating the company as being “managed and controlled” – and so tax-resident – here.Other jurisdictions, such as Ireland, Australia and Jersey, have issued guidance confirming that their national revenue authorities will not seek to capitalise on the global dislocation caused by coronavirus by asserting that foreign companies have become resident there because of the actions of their directors.HMRC has not – yet – issued similar guidance, and so company directors would be prudent to assume that existing UK rules on e-communication still apply. Whilst there is little direct judicial authority on the point, it is widely thought possible that a director who takes decisions in the UK – including through participation in board meetings – can inadvertently cause the company to become resident here.Fortunately, on 3 April, the OECD released guidance for member countries (including the UK) on the application of tax treaty rules to the residence of individuals and companies – at least, insofar as double tax treaties are concerned. The OECD guidance confirms inter alia that “It is unlikely  that the COVID-19 situation will create any changes to an entity’s residence status under a tax treaty.”It is hoped that the UK Government will accept the OECD’s timely and practical guidance and that HMRC will shortly issue updated guidance of its own confirming that directors forced to remain in the UK can continue their work without fear of making their business tax resident here.

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