I would be grateful if readers could offer me some advice. I have a client whose close friend died recently. During their lifetime the friend had made my client a beneficiary under their will. However by a subsequent codicil my client had been removed as a beneficiary. However the friend had written an open letter addressed to his executor and trustees stating that his 'wish' was that my client would receive an annual payment of £10k per year from the date of his death. The friend confirmed that the payment should come from the family company but he stated also that he appreciated that such a payment could only be made with the agreement of the company's directors and shareholders and that this wish placed no legal obligation on them. He also confirmed that this letter was not intended to impose any legal obligation on any person or create a trust.
The solicitor acting for the executors has made it clear to the deceaseds family that there is no legal obligation that they should make any payment at all. He is also of the opinion that any such payment would be a gift. My client has never worked for the family company, nor had any connection with it whatsoever.
Do readers agree that HMRC would view such payments as a gift or do they consider HMRC would draw a different conclusion. Any suggestions would be most appreciated
Replies (10)
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I'm not entirely certain that a company can give a gift. I suspect the legal position may be that the money is taken from the company by the director/shareholders and then given by them to your client. In that case it would of course be taxable on the director/shareholder but, barring IHT issues, not on your client.
I really don't know for sure though, if I'm wrong I'm sure I'll be corrected in no time!
Your client keeps you well informed.
Is there any indication that tax has been applied in any way or is your client treating the receipt as gross?
I am afraid that your client has been made a bit of a fool of.The wish is asking people with no interest in your client to pay tax on money extracted from the company and then pass it on to your client. Sorry no chance. I assume that any credit on directors loan account and shareholdings go to people named in will.
I expect this would be income taxable as a distribution on the recipient or possibly whichever shareholders are benefiting morally or otherwise (you cannot just defray money from a company in this manner without income tax).
I believe your client has received a gift - so no tax for him. However I believe the gift has come not from the company but from its shareholders / directors. They have extracted money from the company in order to make the gift - so there will (probably) be tax consequences for them.
RM
I agree with Justin. The client has received income and, unless something stops it being taxed on the recipient, it's taxable on the recipient.