The recent High Court case of Mehjoo v Harben Barker has attracted a lot of attention both in the media and amongst accountants, regarding specialist tax advice.
 
According to some media reports, the case means that accountants are required to advise on complex tax avoidance schemes, but the reality is slightly more subtle than that.
 
Mr Mehjoo was born in Iraq in 1959 and his parents were of Iranian origin. His accountants were aware of this background as they had acted for him for a number of years, including his first tax returns in the 1980s.
 
The case therefore revolved around whether the accountants had been negligent in failing to notice his non-domicile status and the impact this would have on his UK tax position on making a gain.  The case found that a reasonably competent accountant would have known it was important to consider Mr Mehjoo’s domicile status in the context of his tax affairs.
 
In October 2004 his accountants considered the CGT position on Mr Mehjoo selling his shares in a company. Neither the firm’s general practice partner, nor the tax partner appeared to have considered the non-domicile status or the impact this could have.
 
The accountants claimed that they were not required to give tax planning advice due to the terms of their engagement letter, unless they were specifically asked to do so.  This was found to be not the case, in part due to the fact that they had provided such advice on a number of occasions without express instruction.
 
The judge therefore found that the accountants had been negligent in not considering the fact that Mr Mehjoo was non-domiciled, and that as this was outside of their area of expertise, they should have sought specialist tax advice or advised Mr Mehjoo to do so himself.
 
Tax is complicated, and the ever increasing tax legislation means it is harder than ever to keep up-to-date.  The key message for accountants is that they need to know enough to know that there is a problem, and seek out relevant specialists to assist.  Please feel free to contact us if you feel you may need specialist tax advice for your clients.

A series of articles highlighting key areas that affect taxpayers and practitioners involved with inheritance tax and estates and identifying opportunities to mitigate inheritance tax.
 
Inheritance Tax & Estate Tax Planning
Overview
Inheritance tax and estate planning is an important tool to ensure that wealth is preserved for future generations.
The nature of the planning undertaken will depend on the type and value of assets in the estate as well as the overall objectives such as who is to benefit from the assets, degree of control and distribution of income.
Examples of inheritance tax and estate planning opportunities include:

  • Business Property Relief – up to 100% relief for the value of qualifying business interests, shareholdings and assets
  • Agricultural Property Relief – up to 100% relief for the value of qualifying land/property used for agricultural purposes
  • Woodlands Relief – up to 100% relief against the value of timber on the land, although a charge may subsequently arise if the timber is later sold
  • Gifts to charity
  • Making full use of allowances such as the annual allowance and gifts on marriage
  • Regular gifts out of income
  • Outright gifts to individuals/trusts
  • Trusts for vulnerable persons

Non-UK Domicile Tax Planning
Non-UK domiciled persons are usually only subject to inheritance tax on their UK situs assets, however where a person has been resident in the UK for 17 out of the last 20 tax years they are automatically deemed to be domiciled in the UK, potentially bringing their worldwide assets within the scope of UK inheritance tax.
However, where a person sets up an offshore trust to hold overseas assets whilst non-UK domiciled/deemed domiciled, the trust will be treated as excluded property and should remain outside the UK inheritance tax net.
In certain cases, it may be possible to restructure the ownership of assets to allow assets that would otherwise be treated as UK situs to qualify as excluded property. Although care will need to be taken, particularly where the recent changes to the stamp duty land tax rules are in point.
Inheritance tax and estate planning is a complex area and advice should be sought before any planning is undertaken.
Anti-Avoidance & Other Considerations
Where inheritance tax planning is to be utilised care should be taken to ensure that the planning does not fall foul of anti-avoidance legislation such as the rules for gifts with reservation of benefit, associated operations, pre-owned asset tax etc.
It will also be necessary to consider the potential impact of the proposed planning on other taxes such as capital gains tax, VAT, SDLT and relevant anti-avoidance rules such as the settlement provisions and transfer of assets abroad.
A further key consideration will be the commercial and practical aspects of the planning – in our experience bespoke advice that is tailored to the individual’s precise circumstances is more likely to achieve the desired result than one size fits all schemes.
 
 
 

A series of articles highlighting key areas that affect taxpayers and practitioners involved with inheritance tax and estates and identifying opportunities to mitigate inheritance tax.
 
Transfer to Spouse
 
The general rule is that transfers between spouses whether on death or during lifetime are normally exempt from inheritance tax.
 
However, where the gift is made by a UK domiciled person to a non UK domiciled person, the spousal exemption is currently limited to £55,000.
 
The Draft Finance Bill 2013 includes legislation that will increase the exempt amount to the amount of the nil rate band at the date of the transfer.
 
Thus increasing the amount that may be transferred free of inheritance tax to a non UK domiciled spouse from £380,000 (£325,000 + £55,000) to £650,000 (£325,000 + £325,000).
 
Furthermore, the non UK domiciled spouse will be able to elect to be treated as though they are UK domiciled for inheritance tax purposes. However, such an election will bring the entirety of the spouse’s estate into the UK inheritance tax net, therefore advice should be taken before an election is made.
 
These changes are expected to come into effect from 6 April 2013, although the precise wording of the legislation may change before the provisions are enacted into law.