Contents
Inheritance Tax treatment of usufructs
Welcome
Changes to the 2012/13 Trust and Estate Tax Return
New Inheritance Tax form IHT 408.
Dealing with the Income Tax and/or Capital Gains Tax liability of a
deceased person's estate
Changes to Handling Post in HMRC Trusts & Estates – For
open enquiry cases
Inheritance Tax treatment of usufructs
Recently, there have been a number of exchanges on Internet forums
about whether the creation of a usufruct (the right to the use and
enjoyment of another's property) gives rise to a settlement under
section 43(2) Inheritance Tax Act (IHTA)1984. Some of these exchanges
have suggested that HMRC's treatment of a usufruct for
Inheritance Tax purposes might be changing or has changed. HMRC does
not agree with some of the views expressed – its treatment of
usufructs has not changed.
HMRC has always been of the view that the definition of a
settlement in section 43(2) IHTA 1984 means that a usufruct will more
than likely fall to be treated as a settlement for Inheritance Tax
purposes; although HMRC recognises that the arrangements differ
between jurisdictions and the circumstances of each need to be
considered. The effect is to treat a usufruct as giving rise to an
interest in possession in the property concerned.
Prior to March 2006, the consequence of this was that a usufruct
retained by the transferor did not give rise to a loss to their
estate as the transferor remained beneficially entitled to the
property under section 49(1) IHTA 1984. The property would continue
to form part of the transferor's estate on death. If the usufruct
was created in favour of another, the transaction would give rise to
a potentially exempt transfer equal to the value of the property
concerned and if in favour of the spouse/civil partner, exemption
under section18 IHTA 1984 would be available. HMRC is not aware that
this approach was ever challenged.
Post March 2006, the consequences are rather different and the
creation of a usufruct will now give rise to an immediately
chargeable transfer equivalent to the value of the property concerned
and to relevant property. It may give rise to a reservation of
benefit in the property. If the usufruct is in favour of the
spouse/civil partner, exemption will no longer be available. These
changes are the natural consequence of the changes made to the
Inheritance Tax treatment of settled property in 2006.
Whilst the Inheritance Tax consequences of creating a usufruct
over property are now much less favourable, HMRC remains of the view
that, generally, a usufruct should be treated as giving rise to a
settlement for Inheritance Tax purposes.
Welcome
Welcome to the April 2013 edition of the HMRC Trusts & Estates
Newsletter.
If you have any issues that you would like addressed in a future
edition, please email the Customer Service
Team.
Since the December 2012 edition of the Newsletter HMRC Trusts
& Estates has had a change of Business Head.
The next edition of the Newsletter will be August 2013.
Ann Roberts
Head of HMRC Trusts & Estates.
Changes to the 2012/13 Trust and Estate Tax Return
The main changes to the 2012-13 Trust and Estate Tax Return and
supporting notes can be found in this guidance note on the HMRC
website.
Link to 'Changes to the 2012-13 Trust and Estate tax
return' (www.hmrc.gov.uk/trusts/agents/changes-return12-13.pdf)
New Inheritance Tax form IHT 408
A new form IHT 408 Household and personal goods donated to charity
is now available on the HMRC Website and from the Probate and
Inheritance Tax Helpline – 0845 3020 900.
For deaths on or after 6 April 2012 proof must now be provided to
show that the charity has received the goods being given to it and
the revised IHT408 includes this additional requirement.
Link to IHT408 (www.hmrc.gov.uk/inheritancetax/iht408.pdf)
Dealing with the Income Tax and/or Capital Gains Tax liability of
a deceased person's estate
HMRC Trusts & Estates have received feedback from some
practitioners that it is difficult for personal representatives to
understand how they should deal with the tax liability of a deceased
person's estate.
The tax liability of most death estates during the administration
period is straightforward. Where a trust has not been set up (by will
or the rules of intestacy that apply in England and Wales), the
liability can be dealt with by:
HMRC
Pay as you Earn & Self Assessment
PO Box 4000
Cardiff
CF14 8HR
Personal representatives (executors or administrators) provide
that office with a calculation of the amount of tax due and may then
make a one-off informal payment of the total tax liability for the
whole period of administering the deceased's estate, provided
certain conditions are met. The main condition is that the total tax
liability (Income Tax plus Capital Gains Tax) for the entire
administration period is £10,000 or less. The other conditions
are that:
- the probate/confirmation value of the estate is not more than
£2.5m, and
- the proceeds of assets sold by the personal representatives in
any one tax year are not more than £250,000, and
- the estate is not regarded as complex, so it can be dealt with
without the personal representatives having to complete a Self
Assessment return.
Further guidance on the conditions for using the informal payment
procedures can be found in the Trusts, Settlements and Estates Manual
(TSEM) at TSEM7410.
All informal payments made by cheque for the period of
administration should indicate on the reverse the following:
- name of the deceased
- the last private address of the deceased
- the deceased's National Insurance number or Self Assessment
Unique Taxpayers Reference (UTR).
HMRC Trusts & Estates Edinburgh -
complex cases
HMRC Trusts & Estates Edinburgh is responsible for dealing
with all aspects of the period of administration where the case is
regarded as a complex case (subject to the exceptions at TSEM7366).
We would regard a case as complex if:
- the tax liability for the whole of the administration period is
in excess of £10,000, or
- the estate has a value at the date of death in excess of
£2.5m, or
- the proceeds of assets sold by the personal representatives in
any one tax year exceed £250,000.
If the estate does not fall into any of the above categories but
it cannot easily be dealt with under the informal payments
procedures, contact HMRC Trusts & Estates Edinburgh for advice on
who should deal with the administration period liability.
The address is:
HMRC Trusts and Estates
Meldrum House
15 Drumsheugh Gardens
Edinburgh
EH3 7UQ
Further information
Further information can be found in the Trusts, Settlements and
Estates Manual at TSEM7200 onwards.
For help or advice about Income Tax and Capital Gains Tax on a
deceased person's estate you can also contact the Trusts and
Deceased Estate Helpline - 0845 604 6455.
Changes to Handling Post in HMRC Trusts & Estates – For
open enquiry cases
In February 2013 the HMRC Trusts & Estates offices joined the
growing number of HMRC businesses that use a new scanning facility in
Netherton, Merseyside. You may have noticed our new postal address on
some of our letters to you, and if you have you will also have
noticed a second 'Case Ref' reference number beginning with
the letters CFS or CFSS. The scanned images are delivered to HMRC
staff on a new system called Caseflow which is being used to manage
the case throughout the enquiry process. This additional reference
number identifies the case within the Caseflow system. It is very
important that you quote this reference prominently on your reply to
any correspondence from us. If it isn't included in your response
this may cause delays whilst HMRC trace the correct case.
Very importantly the scanning facility is only being used for
cases where HMRC has opened an enquiry into an account or return. If
HMRC doesn't have an open enquiry into your case your letters
will continue to be delivered to our local offices. When HMRC tells
you that an enquiry has been completed you will no longer need to
include the Caseflow reference if you write to us.
Once a letter has been received in Netherton and scanned onto
Caseflow HMRC immediately checks that it has been clearly scanned and
is complete with all attachments. The original item is kept in a
storeroom in Netherton for 3 months in case there is a need to
retrieve it. The team in Netherton may contact you occasionally to
check if you want an original item to be returned. Some original
items such as passports will automatically be returned following
scanning.
The introduction of this scanning facility doesn't mean that
HMRC can accept correspondence sent electronically, for example by
email. Please do continue to write and HMRC Trusts & Estates hope
you find this new process easy to work with.
The contents of this newsletter are not binding on HMRC and
reflect news and views current at the time of writing