Hi, we have a client company (UK, privately owned, property owning, worth c£6 million) which had a sole shareholder who died last year, and there has been some considerable wrangling between his potential heirs as to who is entitled to inherit his shares in the Company, which is still ongoing. The three of them are in the process of obtaining legal counsel as to who the final owner will be. The company has paid the interim invoice for this work (as the individuals involved could not afford to), and total costs will amount to c£15k. Would I be correct in thinking that if this expense goes through the Company's P&L account it would not be allowable for Corporation Tax, and there would be a BIK for each of the individuals involved in the argument? Is there any way that this could be argued as being for the good of the Company (ie in knowing who the owner is, and can subsequently continue to trade), and therefore in some way allowable for tax purposes?
Any advice would be much appreciated, thank you
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I read your description as saying the legal services were procured by the individuals (and concerning their personal positions) and the invoice is addressed to them. On that basis, I’m struggling to see how reimbursement by the company creates an allowable cost.
I can’t see any benefit to the company’s trade and, if there was one, is there an argument the cost is capital?
I have seen one case like this, and I did claim the expenses on this basis. Whether that would have survived an HMRC challenge, I'm not certain, but I felt there was a reasonable case for treating the costs thus. HMRC never queried it (and as we all know, they almost never query anything), but my conscience is clear on the matter. In your shoes I would claim it.
Thank you, I can see the argument for claiming, and waiting to see if it ever gets disputed
Thank you, I can see the argument for claiming, and waiting to see if it ever gets disputed
That isn’t how self assessment works.
Why does the will, or, if the deceased was intestate, why do the intestacy rules not determine who inherits the shares?
I appreciate that this does not answer your question, but I am just curious why the costs you are asking about were incurred. Or is it just a probate dispute - the validity of the will is being contested?
Hi John
The Estate is spread around several countries, and there is ongoing discussion about where the settlement should be established - the deceased left an out of date will in one country, and no wills in the other countries - and also about the validity of some 'Trust' paperwork.
Hi John
The Estate is spread around several countries, and there is ongoing discussion about where the settlement should be established - the deceased left an out of date will in one country, and no wills in the other countries - and also about the validity of some 'Trust' paperwork.
How is the will "out of date"??
Left to wife - never divorced, but have been separated for some time - no mention of new partner/family. Can all be sorted out, but takes time
Divorce doesn't change the terms of a Will (unless there are Divorce specific conditions in which case they will specify what then happens instead) ... and neither does having a new partner/family (unless there is a subsequent Will).
So none of that explains the (new to me) concept of a Will having a fixed shelf-life?
You are referring to English law - correctly as far as I am aware, although I am not a lawyer. But we are told that there are several wills in different countries. So the governing law is probably not English.
Good point ... and yet another example of why a forum (even if multi-professional and international in scope - which this site isn't) is not the place to get these kinds of issues usefully addressed.
But FWIW, OP (in one of the responses) said " The Estate is spread around several countries, and there is ongoing discussion about where the settlement should be established - the deceased left an out of date will in one country, and no wills in the other countries" ... so I don't think wills in different countries will be the issue.
What is quite common is for each country to have different rules that kick in in the absence of a Will ... but we have no idea whether intestacy is a relevant issue here - if only because we've not been told the tax or residency status of the deceased and, more importantly, the countries in which the company operates.
There are also circumstances where even if a will is valid it may not bite.
If a remarriage with children then certainly up here spouses and children have "legal rights" irrespective of what is or is not in any will. Different jurisdictions vary re who holds what rights over different assets
I think step one for the lawyers would be looking at the domicile of the deceased and where assets comprising his estate are located.
Totally agree with your last sentence (better expressing what I tried to say).
Not really relevant to thread, but I'm fascinated to hear of yet another way in which you do things different 'up there'.
Presumably this only applies to marriage (so no luck for the second 'missus' if you don't actually divorce the first one)? And does it apply to same-sex marriage (even if that was not the orientation of the first one)? And are children an essential part of the condition? If so, do they have to be the natural children of both the people now married (or are 'inherited stepchildren' or adopted children included)?
I'm not seriously expecting answers to all these from you, but may go and do a little research.
The reason I'm curious is (I hasten to say) not practical, just that I've encountered this kind of 'minimum legal right' in foreign jurisdictions - but only as a default (i.e. where no valid will can be found), not in contravention of a valid will.
What happens if husband/wife loathes the existing children of new paramour and, seeing as they are already 50+, deliberately wants to exclude from any rights?
What happens if the will-maker is committed to the concept of not leaving anything to anyone (I've met a few) ... are charities not allowed 100%?
In Scotland we have both spousal and children's rights when intestate and when testate, (Prior rights and legal rights) these are currently covered within this :
https://www.legislation.gov.uk/ukpga/1964/41/contents
There have also been modification in 2016 Act, this note from Dentons gives a summary and covers wills written pre divorce for instance.
https://www.dentons.com/en/insights/articles/2016/october/26/succession-...
https://www.legislation.gov.uk/asp/2016/7/contents/enacted
One does not require children for the spousal rights to bite, they are distinct, so effectively a spouse is protected from being totally disinherited as potentially are children absent a spouse, each has different rights.
From memory the rights are in some cases limited to moveable estate (part of the ongoing consultation I think) but I would have to check this as there may have been changes/amendments since I studied all of this. (A nodding understanding of certain aspects of the law was useful if chatting with my Dad, so I tended to read outwith the scope of the business law course I was required to take at Aberdeen Uni in 84-85)
There is currently consultation on some of the other areas you touched upon, this link gives an overview but as far as I know this is still just consultation.
https://www.gov.scot/policies/family-law/succession/
Trust this helps, no guarantees all I have written is accurate as I am very out of date.
Many thanks ... there's a lot more structure than I realised existed, so it should be an interesting set of reading materials come the weekend.
At least the separation of spousal and children's rights takes away some of the horrendous permutations that I envisaged ... but the whole concept of testate rights that override a Will's contents is a novelty to me - and requires a mental adjustment.
I suspect that as so often the Scottish approach will be better constructed and more equitable - although I'm never sure if that reflects a national characteristic or there's some other functional reason (the different underlying framework)?
A company doesn't need to know anything, because it cannot think.
There should have been an interim director appointed to manage the company and the shareholding sorted out via will/intestacy/succession.
If there isn't a director, who had the authority to offer to pay the costs?
Hi Gilly
Thank you for your response. The deceased shareholder was not a Director of the Company. The Company Director (who is not a shareholder, and is not part of the dispute over the Estate) is in place, and continues to run the Company.
There is currently a dispute over the distribution of the Estate, with lawyers from three countries involved, hence the delay in deciding succession.
Thanks for your response, I agree, just asking in case there was an argument somewhere that they could be claimable by the Company. The Director has paid the invoice because he was under pressure from the potential heirs (the deceased's children) , who he has known most of their lives. Sometimes, Directors get things wrong. :( It's done, and we need to deal with it
Put pressure on the supposed heirs to repay the business for funds they obtained ‘unlawfully’
The Director has paid the invoice because he was under pressure from the potential heirs (the deceased's children) , who he has known most of their lives.
That’s pathetic. He needs to be reminded of his fiduciary duties.
His problem is that one of them will end up as shareholder and then question why he has paid the expense of the others.
Treat the payment as a loan and ask for repayment.
Because accountants are able to vary any payment and/or agreement after the event. It's their superpower.
What business reason does the company have for paying the personal legal costs of people who may or may not become a shareholder? How does it impact on the company?
As they weren't a director and the director has continued, I'm not seeing an issue that would require paying for the company to obtain legal advice, much less require the company to pay for (what seems to be) unconnected parties to obtain legal advice on their inheritance position.
What happens if a will crops up that leaves everything to a cat rescue?
I could go on (and on, and on). This has potential disaster written all over it, but I sincerely hope it doesn't come to that.
My money would be on it being caused by some clueless soul who was 'trying to help'.
For the life of me reading the OP original question and the many comments on wills, estates and rights I cannot see how this is an issue for the company and hence a justifiable expense and I very much doubt a tax deductible expense.
Its for the heirs to sort it. As for the director I think he acted outside his authority.
What's done is done. It sounds small beer in the context of the apparent size of the company. Probably even worth it to stop the director being distracted from running the business by squabbling potential heirs. Disallow it, tell them not to do it again and move on. The director could consider asking the "heirs" to refund the payment.
That was a request for information (OP must have had some reason to say that) - something which is in singularly short supply in this thread. Not that that has prevented people proferring full opinions about everything, of course.
Fair enough. So, to complete my post, I would add.
If they are in fact BiKs, treat them as such and move on.
Or, to paraphrase your completed post, get the tax treatment right and don't worry about the rest (nyp). I think we agree.
Probably the most practical response, thank you :) Both options are currently being discussed
Are they using 1 counsel or 3 ?? If 3 will the 2 accept the legal advice that grants ownership to 1 or ask for further opinions. This could run & run and needs to be stopped by the director ASAP.
I find it hard to believe that the 3 cannot raise £15K when they could inherit a company worth £6 million.
Are they acting individually or as a group with the winner taking all ?? In the latter case a joint agreement should be struck that the winner pays the legal costs
The correct treatment of the costs should be to a loan account not P & L
Currently 1 counsel for 3 beneficiaries, but I personally think it will come down to 2v1, and yes, it could run and run, so want to nip it in the bud now. Agree with your advice, thank you
Surely from the Company's perspective the shareholder becomes the executors (if there is at least agreement as to who the executors are, which may not be the case if will disputed/intestate succession) and that is all there is to consider .
If the parties winding up the estate do reach some conclusion (even as to who are the executors) they can in due course advise the company but I see none of it being the responsibility of the company to resolve and see the director of the company potentially exposing himself to charges of misusing company funds.
The company director needs to stay well away from the dispute, it is not his/her's concern.
I know it's not part of the question raised (about tax treatment I think?), but I can't work out what OP means by the phrase "obtaining legal counsel as to who the final owner will be".
Especially if 3 individuals are fighting each other but have appointed a single person to provide (what is presumably merely) legal opinion.
That opinion (which is not a judgement or even an adjudication) is virtually bound to be unacceptable to one of the individuals - and probably to two of them.
But to use a horrible American expression, none of them 'has any skin in the game' so - as it stands with the company footing the bills - they will play legal ping-pong until the money runs out.
Jarndyce vs Jarndyce has a horribly prophetic feel here.
Oh and I agree that the correct treatment of the costs (based on what we know) should be to a loan account not P & L - preferably with no further such costs!
I knew when I typed it that 'know' should've been qualified
... but from OP "The company has paid the interim invoice for this work (as the individuals involved could not afford to)"
and then later "The Company Director (who is not a shareholder, and is not part of the dispute over the Estate) is in place, and continues to run the Company".
Everything else is inference or pure guesswork - but it's hard to see a corporate need for the expenditure (ordered by individuals who are neither shareholders nor employees let alone directors of the company).
neither shareholders nor employees
So the BIK thing was a red herring (I miss Debenhams)?
Has OP confirmed that? Last I heard it was one of the two options being considered - though I've not followed all the developments in the flood of facts as they've emerged, and/or may have misunderstood something somewhere.
"Has OP confirmed that?" ... Not explicitly, No, so I'm being a tad presumptive.
OP: "sole shareholder who died last year, and there has been some considerable wrangling between his potential heirs"
... then later, the potential heirs are described as "(the deceased's children), who he (the Director) has known most of their lives".
But you're right, of course, it was OP who first mentioned the possibility of BiKs - so maybe these malcontents are also employees (but not shareholders or directors)?
TBH I think I may have exceeded my daily quantity of interest in undefined cases!
But anyway....
...back on your
it's hard to see a corporate need for the expenditure (ordered by individuals who are neither shareholders nor employees let alone directors of the company).
...that's presumably a basis for disallowing the expenditure. Which was the OP's question. It's not a basis for saying the expense must instead have been a loan (or exercising that accountant's superpower to convert it retrospectively to such).
Is it?
No it isn't and I think (or at least hope) that's consistent with what I've been saying all along ... it wasn't me who introduced BiKs into the storyline (OP did that).
It was also, as you've picked up, intended to answer OP's actual question (I'm all for a little novelty now and again)!
Anyway I'm going to retire early today in order to celebrate ... having just found out that I've won my Appeal against the incomprehensible previous decision of my local Planning Dept. The process started well before Covid, but I never give up!
If the planning process was not incomprehensible my daughter would not have employment, so I welcome its perverse decisions.
In fact there are a fair few on these boards whose livelihoods are financially enriched by complexity coupled of course with the stupidity of clients acting first and asking after.
As my father used to say, "God Bless the Man who writes his own will"