No Tax Returns submitted for last 16 years

No Tax Returns submitted for last 16 years

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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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By johngroganjga
29th Sep 2014 08:07

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.

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Replying to youngloch:
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By ArsalanShah
29th Sep 2014 14:13

executor

johngroganjga wrote:

Who is instructing you?

of course final instructions will only be received by the executor.

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RLI
By lionofludesch
29th Sep 2014 08:49

Rent

How much is the rent ?  £600 a month ? Week ? Year ?

Is there any tax liability ?  Are these earlier years worth pursuing ?

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Replying to LostinSuspense:
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By ArsalanShah
29th Sep 2014 13:48

per month

lionofludesch wrote:

How much is the rent ?  £600 a month ? Week ? Year ?

Is there any tax liability ?  Are these earlier years worth pursuing ?

All rent figures are per month.Based on initial information,its very unlikely that there will be any tax liability.Thanks

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Replying to JessicaRain:
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By ArsalanShah
29th Sep 2014 19:29

possibly not

lionofludesch wrote:

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

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Replying to nick farrow:
By Paul D Utherone
29th Sep 2014 23:33

Well now

ArsalanShah wrote:

lionofludesch wrote:

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

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.

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

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Replying to nick farrow:
RLI
By lionofludesch
30th Sep 2014 08:58

Waste of time

ArsalanShah wrote:

lionofludesch wrote:

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".

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Replying to nick farrow:
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By lionofludesch
30th Sep 2014 09:01

Apologies

Double post

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By mdcallen
29th Sep 2014 09:05

time limit

The time limit on death is four years, so you can ignore the earlier years.

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By bernard michael
29th Sep 2014 09:21

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? 

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Replying to Locutus:
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By ArsalanShah
29th Sep 2014 14:16

probably not

bernard michael wrote:

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? 

Dont know from where as this still needs some digging.He has full time job and do not submit SA returns so I am correct in assuming that no rent has been declared.Put it this way,what if his mom is the executor and she has authorised her son to deal with property management,authorised signatory etc?

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Replying to atleastisoundknowledgable...:
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By User deleted
29th Sep 2014 15:23

?

ArsalanShah wrote:

what if his mom is the executor 

 

Mum

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Replying to SXGuy:
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By lionofludesch
29th Sep 2014 15:40

??

BananaMan wrote:

ArsalanShah wrote:

what if his mom is the executor 

 

Mum

Mam

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Replying to SXGuy:
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By ArsalanShah
29th Sep 2014 19:29

well spotted

BananaMan wrote:

ArsalanShah wrote:

what if his mom is the executor 

Mum

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By bernard michael
29th Sep 2014 14:46

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?

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Replying to mr. mischief:
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By ArsalanShah
29th Sep 2014 19:20

Tax Return just because

bernard michael wrote:

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.

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Replying to johnhemming:
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By thehaggis
29th Sep 2014 21:50

2 points

mdcallen wrote:

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

ArsalanShah wrote:

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.

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Replying to LostinSuspense:
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By ArsalanShah
30th Sep 2014 04:35

Please clarify

[/quote]

The landlord (the person named in the tenancy agreement) is the person entitled to the income and is therefore assessable on it.

[/quote]

A named on tenancy agreementB receives rental income & is registered owner of the property

In this case,it is very likely that A is only assisting his elderly mother to manage affairs with estate agent and B is actually receiving the rental income? Would you still advise that A is assessable on the rental income and he has to do SA as well? Please clarify

 

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Replying to LostinSuspense:
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By ArsalanShah
30th Sep 2014 04:36

Please clarify

thehaggis wrote:

The landlord (the person named in the tenancy agreement) is the person entitled to the income and is therefore assessable on it.

A named on tenancy agreementB receives rental income & is registered owner of the property

In this case,it is very likely that A is only assisting his elderly mother to manage affairs with estate agent and B is actually receiving the rental income? Would you still advise that A is assessable on the rental income and he has to do SA as well? Please clarify

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Replying to johnhemming:
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By bernard michael
30th Sep 2014 09:26

Returns ofr not that is the question!!

ArsalanShah wrote:

bernard michael wrote:

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

 

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Replying to Accountant A:
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By ArsalanShah
30th Sep 2014 20:11

No Tax No Return?

bernard michael wrote:

(16 years returns should be interesting for you).

bernard michael wrote:

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

Thanks for your reply BUT i believe that you are getting wrong end of the stick here.What interests me or someone is not the question.HMRC is targeting tax evasion by residential landlords.The Let Property Compaign offers this opportunity to bring tax affairs up to date if a landlord is letting out residential property in the UK or abroad and to get the best possible terms to pay the tax you owe.There is alot of online training being offered to residential landlords to tackle tax evasion and so on.So,this has created atleast some (if not a lot) awareness in the society.

So,when a client approches an accoutnant,he is being advised (because he/she doesnt see any interest in that client) that because you have never been sent a notice to file a tax return + you were in receipt of undisclosed income BUT you dont owe any tax so,just go and relax? For 16 long years this landlord never acknowledged this obligation to bring tax affairs up to date Why? Was there lack of information or awareness or was it a deliberate plan to cheat the taxman?

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By thehaggis
30th Sep 2014 21:00

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.

 

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David Winch
By David Winch
30th Sep 2014 21:25

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

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