Lesley King summarises HMRC’s updated guidance on using a UK Property Account for payment of Capital Gains Tax, and what this means for trustees and personal representatives.
On 22 December 2021, HMRC updated the guidance on use of a UK Property Account for payment of Capital Gains Tax (CGT). The guidance is contained in Appendix 18 of the CGT Manual and contains useful practical points for trustees and personal representatives (PRs).
In relation to trusts, the guidance reminds trustees that a trust must be registered with the Trust Registration Service before creating a CGT on UK Property Account. Corporate trustees should request a paper return as currently they are not able to use the online account.
PRs can use their own CGT on a UK Property Account (as can attorneys) to report a gain. When completing the details, they select the option to complete the return for someone else or someone who has died. They should enter the deceased’s full name and, if available, one of the following:
- National Insurance number
- Self Assessment Unique Taxpayer Reference
- CGT on UK Property Account number
- date of the individual’s death
Payment cannot be made by PRs online. When the return is submitted, a message will be displayed advising that HMRC will contact the PRs with the amount due and how payment can be made.
The payment window is stopped when the return is received and will restart once the charge is raised. The letter sent by HMRC will set out the reference number, details of how to pay and the date for payment.
A PR with a personal UK Property Account can authorise an agent to use it to make payment by means of a digital handshake (details for creating are set out in 1.3 of the Appendix). The guidance points out the limitations of this process:
- authorisation will enable the agent to view returns previously submitted by the PR for their personal tax affairs;
- it is not currently possible for an agent to be authorised for a single return. So, if the PR has already authorized an agent in relation to their personal tax affairs, they cannot authorize a different agent in relation to the estate.
HMRCs’ Trusts and Estates Newsletter for December 2021 included this item on reporting gains on mixed use property: “The rules have been clarified for UK residents so that where a gain arises in relation to a mixed use property, only the portion of the gain that is the residential property gain is to be reported and paid using PPD. A mixed use property is one that has both residential and non-residential elements.”
Probate fees and new rules on excepted estates
Remember that the Non-Contentious Probate Fees (Amendment) Order 2021 (SI 2021/1451) comes into force on 26 January 2022 and aligns application fees charged to professionals and non-professionals at £273.
The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021 (SI 2021/1167), which greatly extend the categories of excepted estate and remove the need for an IHT205, apply to deaths on and after 1 January 2022. Necessary updates to the PA1A and PA1P will be made between 1 and 12 January 2022 and HMCTS has asked that applications for grants affected by the new regulations are delayed until later in the month.
Registration of trusts which closed before registration was possible
On 29 November 2021 the Association of Tax Technicians (ATT) reported that HMRC had confirmed in a statement issued on that date that their previous position remained unchanged.
This is that trusts which closed before facilities to register them were available still need to be registered – and then closed. The statement closes with this: “We appreciate that it may be challenging to raise sufficient awareness of this requirement with former trustees and agents of trusts that no longer exist, however we have an obligation to produce and maintain a comprehensive register of trusts in the UK from 6 October 2020 onwards. HMRC will take a proportionate approach should any such trust come to our attention after the deadline for registration of 1 September 2022.”
Recent cases
Two recent cases on the importance of spelling things out to the client are worth a mention.
In Re Williams (Deceased) [2021] EWHC 586 (Ch) the deceased was a farmer with four sons. One son, Richard, lived with his father and farmed the land in partnership with him. The farm was by far the most significant asset in the testator’s estate. The deceased had the familiar problem of wanting to benefit all his children but wanting the business to go to the son who was actively involved in it.
In his first will the deceased had left his share of the farming business to Richard but stated expressly that the land, farmhouse, and buildings (held in the deceased’s sole name) were not to be treated as an asset of the partnership. The residue was left equally to the four sons with a 10 year option for Richard to buy out his brothers.
The later will gave the deceased’s share of the farm including the land, farmhouse, and buildings to Richard, gave his investments to his sons equally, and left the residue to be divided between the sons. However, as the only assets of significant value had been specifically given, the residue was valueless.
The evidence did not suggest that the deceased had changed his mind about wanting to benefit all his sons to some extent and the letter from the solicitor explaining the effect of the will referred to the shares in residue to be inherited by each son, without pointing out that they would be inheriting a share of nothing.
In Royal Commonwealth Society For The Blind v Beasant & Davies [2021] EWHC 2315 (Ch), although the facts are very different from Re Williams, the issue is much the same: did the deceased understand the effect of the will?
The deceased made a gift to an old friend (appointed as executor) of “the largest sum of cash which could be given on the trusts of this clause without any inheritance tax becoming due”. She then made specific gifts of a property and a shareholding and pecuniary legacies, expressed to be “free of “to other individuals; the residue was left to charity.
The value of the specific and pecuniary legacies significantly exceeded the deceased’s nil-rate band with the result that the executor stood to inherit nothing. Counsel for the executor argued that the legacy should be read as a gift of cash equal to the nil-rate band in force at the date of death but Master Shuman refused.
We do not know whether the deceased understood the way the will worked nor whether the will drafter spelled out the possibility that the executor would get nothing. However, it is unlikely that the case would have been brought had such a written explanation existed.
As a general point, there is always a danger when a will contains specific gifts and residuary gifts to different people of unfairness to either the specific beneficiaries (where, for example, the assets are disposed of before death) or the residuary beneficiary (where, for example, the testator is much poorer at the date of death than when the will was made).
It’s worth explaining that in writing to avoid disgruntled beneficiaries claiming that the result is not what the testator would have wanted.
