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Overpayment claim - Trust - dilema

Overpayment claim - Trust - dilema

We have taken over a trust client where for income tax purposes the trust has reported income of £x over the past 10 years as an IIP.

On reading of the trust deed and after consulting counsel it is clear that the trust is discretionary and income should have been reported as such.

The trustees now have a liability to consider of say £200,000, plus interest.

On the other side, the beneficary would be entitled to a repayment of £150,000 during the same period.

Q, if we admit the error on the trust side will HMRC automatically allow an overpayment to the beneficiary on the basis that we are comparing like with like with one error.  Or will the strict overpayment relief of 4 years be adhered to ?


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29th Nov 2012 12:02

Reverse problem

I have the reverse problem. A trust has been taxed for many years as discretionary when it is, in fact an IIP. No problem you cry as discretionary trusts are taxed at the top rate. Only this trust goes back to before 2003/04 (the last year trusts were not taxed at the top rate) and the trust received a large dividend in 2003/04. We also have the issue of the trust overpaying for many years with the beneficiary underpaying.

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By blok
30th Nov 2012 12:30


obviously I must disclose full facts to hmrc on both the trust and the beneficiary.

I informally called HMRC to ask how they would treat the receipt of such an unprompted disclosure but they couldn't say without first reviewing the detail (which you would kind of expect them to say).


I fear this may end up as a PII event.




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30th Nov 2012 13:24



As you suspect HMRC can assess all years for the trust and can restrict the repayment to the beneficiary to 4 years.

It may be possible to do a net settlement with HMRC, or it may be possible to restrict the years that HMRC can assess, all that of course depends upon the facts of both cases.

Given the amounts involved you need specialist advice

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By jlsTax
30th Nov 2012 14:17

HMRC Assessment

Whilst it is suggested above that HMRC would be able to assess all years, I think they would still have to consider their normal time limits for raising assessments - presumably under the discovery provisions.  They would then need to consider whether the loss of tax was due to the careless (6 years) or deliberate (20 years) behaviour of the taxpayer or agent.

Given the limited facts, it would seem that it was unlikely they would consider the error to be deliberate and there may be a case to argue that it was not careless either.  If so, they would be left with a four year period as well.

This probably explains why HMRC will not indicate approach until they see detail.  In the circumstances the disclosure should be carefully worded to avoid giving evidence of careless nature of error.  Deal with this when necessary, not in opening letter without thinking through implications.


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