They say that there are only two things certain in life – death and taxes!
While we can fly to the moon, we cannot predict when we might die, so it makes planning for what we want others to do for us in the event of our death even more important.
Traditionally, in the UK, the majority of us may make a will. However, a lesser proportion ever reviews it. So, is the will still fit for purpose? Does that purpose include dealing with UK tax affairs and what happens if those tax affairs are not up to date?
I was contacted recently by an adviser whose clients (his mother and father) had both passed away in their sleep together.
The family expected:
- the home to be mortgage free;
- each to have their own current account at the bank;
- perhaps a string of building society accounts; and
- a modest amount invested in quoted shares.
However, while the father had shares valued at approximately £100,000 by the family stockbroker, they did not expect the mother to have quoted shares with a value of over £2m. Dad had been an avid reader of the shares section in the Daily Telegraph on a Saturday, not Mum.
They had been in the family business but had “retired” years ago. Now the sons were in control. Instinctively, they called their trusted adviser of many years. Thank goodness they both had a will on file. The two sons were named as joint Executors, and the adviser was named as their preferred advisers to support them. The terms of each will were straightforward. While the father’s finances were also straightforward, the quantum of the mother’s estate was 10 times the value expected.
Where had all that additional wealth come from?
The issue
The mother’s tax returns never indicated such wealth, nor the income from it. The adviser was concerned that the estate and all of her previous tax returns may be investigated by HMRC.
The adviser was unsure how to deal with the issue, especially as the inheritance tax return was due shortly.
The approach
The advisor contacted me, asking me to take over the situation and deal with HMRC on the family’s behalf.
By sitting down with all the family initially, it was clear that their mother had grown up in a family without much money. From a young age, she had learnt many valuable lessons, including that money should be saved at every opportunity and invested.
I took time to establish all the relevant facts, and a pattern began to emerge that the family knew nothing about. Nor did the adviser. The pattern was not complicated. The father looked after all the finances at home, paying all the bills for the running of the house, while his wife was entirely family-focused, choosing house furnishing, clothes, etc that her husband paid for.
The business had been trading for many years. Throughout that time, they were paid the same level of gross wages, bonuses and dividends.
I undertook a forensic examination of all the income and also the share dealings with the stockbroker. It became apparent that the father had selected the shares for the mother. The big difference was that he kept selling shares to pay the bills. She didn’t. Most of the mother’s shares had never been traded. Some companies were taken over, but she always chose to be paid any excess in shares rather than cash.
The outcome
HMRC were contacted and the situation was explained. Wherever possible, the stockbroker was able to produce a statement of shareholdings in support of the growth in value.
By talking to HMRC about the share dealings, no investigation was launched, no additional tax was due, no interest was charged and no penalties were incurred. This meant there were also no large advisor fees to handle an investigation. It was a great result for the family, who were very appreciative of the work I had done.
My advice
Take the initiative. Advise your clients to deal with any potential tax issues now and seek advice from an experienced tax adviser, like myself.
Often, by asking the client the right questions, understanding all the facts and explaining the situation to HMRC, a tax investigation can be avoided.
Such a life-changing event can be distressing; a tax investigation can be equally distressing. Depending upon the facts, sometimes the best advice can be to make a statement to HMRC (otherwise known as a Disclosure).
If any of your clients or their family members have unresolved UK tax problems, that may come to light in the future, then it is far better to deal with them now.
These matters are delicate, and sensitivity needs to prevail. If you need help and advice on clients who may have unresolved UK tax issues, you contact me at 07979 313 010 or email me.
Paul Malin runs Paul Malin Consultancy.
