My client's grandmother was the beneficiary of two large Trusts, set up in the 1930's. She died in February 2016 and her six grandchildren inherited the assets. The investments were sold in July 2016 for more than the value at the date of death. My client received interim distributions in August 2016, October 2017 and the final one with the distribution statement in October 2018 (which was only provided to me last week) . No R185 forms have been issued by the solicitors dealing with winding up the Trusts.
I am a sole practitioner with no experience of dealing with trusts. My question is does my client's share of the income and capital gains from Feb 16 to Oct 2018 all go on his 2018/19 tax return or do we have to write to HMRC to disclose my client's share of the income and capital gains in each individual tax year they arose (hoping for no penalties as the solicitor did not provide any paperwork until October 2018). My clent is a 45% taxpayer and the income and gains are material.
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Assuming that your client became the beneficial owner of a share of the trust assets on the grandmother's death, the income and gains would be taxable on them in the year they arose - not when the money was distributed. But, if you don't already know for sure, you need to check that none of the income or gains were taxable on the trust - i.e. that your client did actually become a beneficial owner on their grandmother's death rather than the trust continuing and then being wound up subsequently.
I'd explain about the late provision of information by the trustees in the letter telling HMRC about the income and gains in years which are now out of date to amend online. They may reduce the penalties - it's worth a try!
Cathy
I'd explain about the late provision of information by the trustees in the letter telling HMRC about the income and gains in years which are now out of date to amend online. They may reduce the penalties - it's worth a try!
What I can't get my little head around is [if the trust became bare when Grandmother died (as we have both assumed, based on the OP's description... although that description could well be wrong)] how could the assets be sold (etc) without the consent of the adult beneficiaries?
The OP doesn't say that the benficiaries didn't give permission - maybe they did. I wouldn't bank on HMRC reducing the penalties if the client was aware that there was income and/or gains even if they didn't have full details - but there's no harm in trying! They might not have been aware that the gains would be taxable on them if the assets were sold by the trustees (or even that there would be gains if there was a CGT uplift on the life tenant's death). I work with a lot of accountants on trust issues and many of them don't really understand the tax implications until I explain them so I wouldn't be surprised if the beneficiairies had no idea they would have a tax bill!
Fair enough.
Of course it doesn't help that the client had a pay-out in August 2016 and has only thought about declaring it now. Nor that HMRC has a view that 45% tax payers are more financially aware.
On 23rd Dec 2019 | marcia.bowers Wrote:
"My client did consent to the assets being sold. Four of the beneficiaries sold their shares in July 2016 but two retained the holdings personally. My client just didn't bother to tell me about it until he got a copy of the distribution statement over two years later. Don't know why such a long delay."
Ah well - I wouldn't be too bothered if he had penalties to pay then. Maybe it will be a lesson learned!
My client did consent to the assets being sold. Four of the beneficiaries sold their shares in July 2016 but two retained the holdings personally. My client just didn't bother to tell me about it until he got a copy of the distribution statement over two years later. Don't know why such a long delay.