Readers’ forum: Long forgotten?
Writing for Taxation magazine, BKL tax adviser Terry Jordan responds to a reader’s query about the tax liability of a UK trust set up for benefit of UK residents and non-doms.
I have been asked to take over the tax returns for a trust established in the 1960s when a UK resident died intestate. The beneficiaries are entitled to a share of the estate based on the rules of intestacy. The trustees are and always have been UK resident.
The property in the trust is a piece of land in the UK and the income consists of rent from this. Six of the nine beneficiaries are non-UK residents and are resident in the Middle East.
The person who dealt originally with the tax affairs was the solicitor acting for the trust. He has since died but he appears to have registered the overseas beneficiaries for the non-resident landlords scheme (NRLS).
However, all that has been submitted to HMRC under the NRLS is an annual information return which is for letting agents or a tenant who has deducted tax under the scheme. But neither of these applies, no tax has been deducted from the rents, and no UK tax returns have ever been submitted for the non-resident beneficiaries.
Since the trustees are UK resident I would have thought that the trust was liable to UK tax and SA900 returns should have been completed. This has nothing to do with the NRLS. As far as I am aware, this has been the situation since the creation of the trust 50 years ago.
Could Taxation readers please help with this?
Query 19,127 – Flummoxed.
Reply by Terry ‘Lacuna’ Jordan, BKL
It is curious that the trust is still going given that we are told it was created on the intestate death of a UK resident in the 1960s. The relevant intestacy provisions are contained in the Administration of Estates Act 1925 as amended by the Intestates’ Estates Act 1952 and, possibly, by the Family Law Reform Act 1969 which reduced the age of majority and gave children of unmarried parents the right to inherit from their estates.
I assume that the deceased left a surviving widow(er) who took a life interest in part of the residuary estate and is still living. If so, given that the deceased died during the estate duty era, no charge to inheritance tax will arise on the life tenant’s death in view of the provisions of IHTA 1984, Sch 6 para 2.
If that is the correct analysis, the interests of the remainder men are currently excluded property and could also be dealt with free of inheritance tax while the surviving parent is alive.
The part of the fund in which the life tenancy subsists will benefit from an uplift to market value for capital gains tax purposes under TCGA 1992, s 72 on the life tenant’s death. It may be necessary to consider whether the principles in Crowe v Appleby 51 TC 457 apply.
On the basis that the trust asset is not residential property, non-resident capital gains tax (and ordinary capital gains tax) should not be an issue for the six beneficiaries who are resident in the Middle East in respect of shares they already own.
I agree that the UK trustees should have submitted trust tax returns and forms R185 should have been issued. Those beneficiaries who live in the Middle East may also have tax compliance obligations in their own country of residence.