A trading husband and wife partnership which owned land incorporated in 1999. All partnership assets were sold to the limited company.
The limited company accounts included land as an asset and a loan account payable to the directors as a credit.This balance was paid.
The partners disclosed the disposal on their tax returns claiming retirement relief and minimal / no CGT was paid.
The conveyance was not performed by a solicitor and the land registry not updated, the land remaining in the husband's name.
Both husband and wife have now passed away and HMRC contend that the land value should be brought into the husband's estate for IHT purposes since the land is in his legal title.
Their view is that a valid land transaction has not been fulfilled with a separate legal document, nor a trust deed prepared to pass beneficial ownership to the company.
They have stated that the accounts are insufficient themselves to complete the transaction. Does anyone have any experience of a similar problem?
Replies (23)
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Might I suggest
legal advice on this one from a sufficiently qualified lawyer. If the figures are large enough Counsel might be justified.
No experience............
...........but would think you're on a dead cert loser.
I can't see any way you could argue this case sucessfully. No conveyance done, no land registry change, nothing, of any real note, to support your claim.
Did you prepare the ltd company accounts? If so, were no checks made, at that stage, as to the validity of the title? Is the company still live?
So ...
As far as the husband and wife were concerned they no longer owned the asset, the company did.
The company has since been struck off and no longer exists ...
What happened to the land? Transferred back to the couple? Sold to a third party without title? Now part of the Duchy of Cornwall as bona vacantia?
Observations
1. One for the lawyers probably, and pause to note that whatever they saved by not using a solicitor at the time will seem cheap compared to what they will now pay...
2. If HMRC contend that the land was not transferred to the Co, will they agree that the money paid by the Co to the dec'd is now owed back to the co? So the net effect on the estate is less than at first sight, as it now has a creditor. Though as land values have risen faster than interest rates since 1999, it would still mean a larger estate, and reduce the value of the company.
One other thought
Could your PI be on the line? If you acted at the time I would suggest you speak to your insurers ASAP
This is not my area but I would think that;
a) title deeds prove ownership (if the company has the title deemds in its favour), and
b) non-registration cannot deny ownership rights????
HMRC's view is obviously right - and by striking the company off the shareholders are already on record as agreeing that the company did not own the property, or else they were extraordinarily misguided or ill-advised. The estate should just pay up.
JPG80
Please answer Euan's question above re what happened to the land
I belive you can argue that husband was bare trustee for company which had beneficial ownership - legal ownership is irrelevant. But it sounds like company has made a cgt disposal. More info needed
Bare trust
I think you have a strong case;
it was clearly always the intention that there should be a disposal to the company - the company recognised the asset in its Balance Sheet and paid for it by creating a loan account. The company declared a disposal and used the sale proceeds to pay off its creditors before distributing the balance to its shareholders. Although husband was a shareholder he only got his minority share of the balance. To use the old adage 'Follow the money!' This proves that he did not have any beneficial interest in the property - he only had an interest in the shares of the company.
I would tell the person in the Revenue to stop paying silly B's and refer the matter up to someone who knows what their doing!
Also have a read of the recent First-tier Tribunal case of Lorna Watson [2014] TC 03738. Land was still in her name and that of her husband when sold, but it was held that she had lost beneficial ownership some years earlier. (A slight word of caution; it was a Northern Irish case, I don't think the legal position is any different from over here, but it might be worth checking.
Declaration of Trust?
Does a DoT exist, showing the company as the beneficial owner?
If you could produce this, together with the other facts, (CGT paid etc etc), then you may be able to persuade HMRC...............
Presumably the company's sale of the property occurred after the date of death?
Was the deceased a shareholder in the company at the date of death, and if so what was the extent of his shareholding?
a matter of trust
implied constructive trust ?
argue the essence was..... ltd company acted as if it was theirs as beneficial owner , enjoyed all benefits , and receipts ,
but watch hmrc resist
But the successful sale of the property by the company also confirms the company's ownership.
Have you worked through the impact on the share valuation at the date of death of the property not belonging to the company, which is the obvious corollary to HMRC's position?
Could you not argue
in expanding Chicken Farmer that as the officers of the Company have signed the balance sheet that they have acknowledged the beneficial ownership of the property.
I initially thought that as long as there was a written contract for sale, the fact that the conveyance wasn't land registered wouldn't affect its validity. However, I've done a bit of research and it appears compulsory registration has been in place in England & Wales since 1990, and so where freehold is transferred it must be registered. If the transfer isn't registered it is void and title reverts to the transferor trust for the transferee.
See http://www.legislation.gov.uk/ukpga/2002/9/part/2/chapter/1/crossheading...
So it would seem the land is owned by the husband in trust for the company, but as he is deceased my understanding is the company (as trust beneficiary) can apply to the court to appoint a new trustee. Then title would have to be registered to it transferred to the company. Not sure about inheritance tax position, though.
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Just read your later comment that the company has been struck off, so this will change things. I don't know the default position on where trust subjects go when the sole beneficiary ceases to exist (bona vacantia or back to the settlor?). Working out who actually owns the land will probably be a job for a lawyer, before you can start to look into inheritance tax.
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Just found some more (from HMRC website) and take "die" to mean "cease to exist" (i.e. be struck off): "A bare trust is one where the beneficiary is entitled to both the income and the assets in the trust. Therefore, when they die, both income and assets are considered part of their estate. The personal representative needs to work out whether there is any Inheritance Tax to pay and include the deceased's interest in the bare trust, on form IHT400 Inheritance Tax Account." Not sure if this helps, but it's looking more like bona vacantia.
I'd be interested to hear how this works out.