'wish' taxable or not

is a non binding wish of a deceased taxable?

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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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By Duggimon
21st Nov 2017 09:34

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!

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By Tax Dragon
21st Nov 2017 09:37

Since, at present, no payments are being made, why waste (our) time on speculation?

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Replying to Tax Dragon:
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By Ronald2017
22nd Nov 2017 09:11

It is not my wish to waste your time or indeed that of anyone. The first payment to my client has indeed now been made, the payment being a company cheque.

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By Tax Dragon
22nd Nov 2017 09:28

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?

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Replying to Tax Dragon:
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By Ronald2017
22nd Nov 2017 10:25

The original letter containing the 'wish' referred to a payment of £10k and my client has received that amount on the family company's cheque. So no deductions.

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By Tosie
21st Nov 2017 19:30

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.

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By Ronald2017
22nd Nov 2017 09:13

Would appear that some families honour their deceased's wishes (at least for now) as the first payment has now been received by my client.

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By Justin Bryant
22nd Nov 2017 10:49

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).

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Out of my mind
By runningmate
22nd Nov 2017 10:52

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

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By Tax Dragon
22nd Nov 2017 11:05

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.

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