Duncan Lewis

Legal Aid

Lawyers London

Trusts and Estates Newsletter published from HM Revenue and Customs (HMRC)

Date: (30 April 2013)    |    

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The topic in the newsletter included
• changes to the 2012/13 trust and estate tax return
• new inheritance tax form IHT 408
• inheritance tax treatment of usufructs
• dealing with the income tax and/or capital gains tax liability of a deceased person’s estate
• changes to handling post for open enquiry cases
HMRC has confirmed its view that a usufruct (legal right to use another’s property) was likely to be treated as a settlement for inheritance tax (IHT) purposes although the arrangements in different jurisdictions could rise to something other than an interest in possession settlement.
Usufruct is in essence a care out of the legal ownership and the beneficial ownership of property.
A usufruct is a subordinate real right of limited duration, usually for a person's lifetime, under which the holder of the usufruct has the right to use the property and enjoy its fruits.
Prior to the changes to the IHT legislation in March 2006 a usufruct had no IHT implications as the transferor of the legal title still retained the beneficial interest and so there was no loss to the estate. But after the 2006 changes the creation of usufruct is a chargeable transfer for IHT purposes. HMRC view is that, generally, a usufruct should be treated as giving rise to a settlement for IHT purposes but this is not accepted by all trust professionals.
The newsletter also clarifies on how to deal with the tax liability of an estate. If the total tax liability for the period of administration is not more than £10,000 the estate can be treated as a simple estate subject to the conditions that the value of the estate is £2.5m or less and the value of the estate is the proceeds of assets sold by the personal representatives in any one tax year are not more than £250,000 and it is not regarded as complex.
An estate is complex if the tax liability for the entire period of administration is over £10,000 or the estate has a value in excess of £2.5m or the proceeds of assets sold by the personal representatives in any one tax year exceed £250,000.
The tax liability of a simple estate can be settled by informal payment of the total tax liability at the end of the administration period without the need to complete a self-assessment.
For a complex estate a self-assessment is required and the payment of tax is under the usual rules.