Hi Folks
We have been approached (through referral) by a client who is seeking advice on rental accounts and late tax returns overdue of his late father.Client's tax affairs as we understood during initial meeting with his son are as follow:
- Late Mr P K received rental income of £600 (cash in hand) between 1998- 2004
- Property was vacant due to essential repairs - deceased client spent around £30k on the property (almost all receipts available)
- Started receiving rental income of £800 (part cash + part bank trasnfers ) between 2005 - 2009 & rental income of £1200 (part cash + part bank transfers) between 2009 - present
- Died in 2013 - property ownership transferred to his wife Mrs P K
- Mrs P K is registered disabled person and hence on disability allowance + receiving state pension also
- No bank statements or few statements available for the period 1998-2013
How would you advise on preparing checklist to start ticking the boxes for this client?
Any particular advice from those who have dealt with such messy tax affairs?
Voluntary Disclosure or process it as normal?
Am I right in saying that 1998 - 2013 SA Returns for late Mr P K would be signed by the executor? -Worth noting that property is owned by Mrs P K BUT tenancy agreement has MRs P K's son as landlord
Possible penalties by HMRC for late notification? Is it worth noting that under TMA1970 S40 the normal time limits do not apply to assessments on personal representatives even where there is careless or deliverate conduct by the deceased and this legislation may limit the number of years you need to disclose.
Replies (23)
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First things first
Who is instructing you?
You say you have been approached by the deceased's son. But is he the executor? You can only take instructions to get involved in the tax affairs of the deceased from the executor.
Rent
How much is the rent ? £600 a month ? Week ? Year ?
Is there any tax liability ? Are these earlier years worth pursuing ?
Well now
your link is HMRC guidance not the law, so IF there really is no liability then there was no need to notify. That of course assumes that there really was no liability and all/ any expenses were revenue and allowable.That may be why no returns were issued.
no returns were issued not because there was no tax liability to pay BUT because of no rental income was ever declared to HMRC.
Reason SA returns are required because if a person is in receipt of rental income between £2,500 - £9,999 (after allowable expenses ) or rental income of over £10,000 (before allowable expenses) Self-Assessment Return needs to be submitted. Click here for more info
It's the same as directors. HMRC guidance says 'Directors have to submit SA returns' but the legislation says no such thing and there is only a requirement to register for SA if there is a liability to return.
Then look at the time limits for assessments on deceased estates - for example HERE - and you will see that the scope for HMRC if there is a liability is restricted to 4 years
Waste of time
That may be why no returns were issued.
no returns were issued not because there was no tax liability to pay BUT because of no rental income was ever declared to HMRC.
Reason SA returns are required because if a person is in receipt of rental income between £2,500 - £9,999 (after allowable expenses ) or rental income of over £10,000 (before allowable expenses) Self-Assessment Return needs to be submitted. Click here for more info
Yes, yes- came up on this forum a fortnight ago.
I still say that, if no tax is due, what's the problem ?
It's not mountaineering - we don't fill in forms "because they're there".
You say the son is the landlord. From when was he named as such on the tenancy agreement and has he been declaring any rent to HMRC?
In answer to your question. If the agreement is in the son's name the rent is his to declare - so problems if he hasn't.You need to clarify the commencement date
Has a new tenancy agreement been written since father deceased?
2 points
The time limit on death is four years, so you can ignore the earlier years.
Time limit is 6 years for FTN. All assessments must be made within 4 years of the death.
But
his name is on tenancy? he's not receiving any rental income in real terms as all rent is being paid into his mum's bank account?
He may be have to declare for previous years before the death of his deceased father assuming if rent was paid into his bank account rather than his father's bank.
The landlord (the person named in the tenancy agreement) is the person entitled to the income and is therefore assessable on it.
Returns ofr not that is the question!!
In answer to your question. If the agreement is in the son's name the rent is his to declare - so problems if he hasn't.You need to clarify the commencement date
Has a new tenancy agreement been written since father deceased?
his name is on tenancy? he's not receiving any rental income in real terms as all rent is being paid into his mum's bank account?
He may be have to declare for previous years before the death of his deceased father assuming if rent was paid into his bank account rather than his father's bank.
I'm still unclear. If the son's name is on the tenancy agreement during the lifetime of his father the son has the problem of not declaring the income and not the father's estate. (16 years returns should be interesting for you). However to repeat others if he hasn't been asked to submit a return and there is no tax to pay no return need to be submitted
Returns
The bottom line is that a person only needs to complete a return if he has been given notice to do so (s8). Where notice has not been given, the only requirement is to notify HMRC if that person is chargeable to tax (s7(1)). If, as the poster intimates, there is no liability to pay tax, there is no requirement to do anything (s7(7)).
That said, the chances of there no being a liability to tax, given the level of income, is very slim.
A suggestion
I suggest as a first step you determine whose income the rents received were. If this has changed over the 16 years then you need to find out when it changed.
If the rental income belonged to the late Mr P K until his death then you can forget about any tax years ending more than 6 years prior to his death.
However if the rental income prior to that time belonged to anyone still alive then you need to consider those old years.
Then you need to consider whether, on investigation by you, the rents in the relevant tax years produced any net taxable income and created any tax liabilities. If they have produced no tax liabilities then no problem arises.
If there are undeclared tax liabilities then you need to deal with HMRC about these (once you have your client's instruction to do so).
I am assuming no properties have been sold or transferred which might have given rise to CGT or other taxes.
David