Wife (my client) recently divorces naughty husband. He now wants revenge because wife has got one over on him over a certain matter.
Husband scratches head looking for any possible means to punish wife. Comes up with brilliant idea.
Both are 40% taxpayers and jointly owned rental properties since ten years ago. Problem is, husband was control freak and wife had absolutely no idea about the rental profits or tax position. She never filled in a tax return - (did she ever know what one was?) But she was allowed pocket-money (he took her earnings).
Appears joint rental profit was taxed on husband (or so it would seem - maybe he didn't declare - who knows). Certainly wasn't taxed on wife.
Rather vague email just came out of the blue from husband's accountant with ten years worth of joint rental accounts. Message from accountant was cryptic. After asking accountant what I should do with 10 years worth of rental accounts she just said she would leave that to my professional judgement. There is a tiny clue that husband may try to amend his prior tax returns in order to instead tax half the rental profit, but that might be a red herring to throw wife off the scent - who knows. (It seems to me that the rather cryptic email is masking something underhand going on).
But what to do with the wife's tax returns. None have ever been submitted in the past. If it was all previously taxed on husband at 40%, the correct tax will have been paid. But if he now reverses half out, then equitably wife should be taxed on this other half.
But is husband able to do this. And what should I do as wife's accountant. Declare it or ignore it.
The husband cannot be trusted. He might try Overpayment Relief if he has declared the income. But is he entitled to rectify if he knew of the error all along. And he won't be able to get Overpayment Relief for all ten years!
As for the wife, is HMRC permitted to make a discovery assessment if she chooses to ignore the 10 years worth of rental accounts. After all, maybe the husband did disclose all of the rents on his tax returns. (She is an honest soul though with no intention to defraud HMRC).
But if she reveals all, I am fairly convinced HMRC will not go back over the whole 10 years. There is absolutely no chance she herself has intentionally defrauded HMRC.
But what is husband's real game. He and his accountant are keeping tight-lipped over the position. It is more than a little irritating that they have given me no idea as to what to do with the accounts.
Should I tip off HMRC. Are there moneylaundering issues for the husband. Should I report husband's accountant to her professional body for the most unprofessional email I have ever seen in my 99 years as an accountant (sorry, 30 years - they had no emails back in 1919 (or even 1988) - but you get my drift)
Oh, what a lovely mess.
Can anyone give me some helpful direction on this. I did playfully ask husband's accountant if husband would care to pay wife's liability out of his consequent tax repayments but that has been met with a stunned silence.
But the time for taking the gloves off may be fast approaching!!!!