Tribunal: Experienced advocacy is best

The need to engage an experienced advocate was stressed in the judge’s summing up in a recent Tribunal case.

The case involved a pension policy held in a discretionary trust at the time of the policyholder’s death. HMRC were arguing that her failure to take retirement benefits when diagnosed with a terminal illness diminished her estate and was subject to IHT. The estate was representated in court by independent financial advisers who had no prior experience of such advocacy.

The trust was established in 1995 shortly before the deceased took out a pension plan under which she could take her retirement benefits at any time between her 50th and 75th birthdays.

If she died before drawing her pension, the value of the benefits would pass into the trust. She died, as a result of terminal cancer, in 2003 without taking any pension payments from the plan.

HMRC issued a determination charging inheritance tax, on the basis that the deceased had made a transfer of value for the purposes of IHTA 1984, s 3(3) by not drawing her pension under the plan. In their view she had made a deliberate decision not to do so which led to her own estate being reduced, but thereby increasing the value of the discretionary trust.

Her personal representatives appealed saying that the deceased had omitted to draw the pension because she did not require it. Had she known about the effect that would have, i.e. a charge under s 3(3), she might have taken advice to avoid it. She had not therefore made a disposition to the trust.

The First-tier Tribunal judge said that any omission is taken to be deliberate unless it is established by the disponor or the personal representatives that it was not. The burden of proof in this respect lies with the executors, not HMRC.

The judge was satisfied that the deceased had made a conscious decision not to take her pension benefits when she reached 60.

Her omission in this respect had to be treated as made as the date of her death and to have been deliberate. The deceased’s estate was diminished by the value of the pension because she had not drawn any benefits. It followed that, under the terms of the trust, the omission to take the benefits personally resulted in the benefits being paid to the trustees.

The judge agreed that inheritance tax was due. The taxpayers’ appeal was dismissed.

The judge said that, given the complexity of the case, it would have been appropriate for the executors to have appointed counsel or an equivalently experienced person to represent them.


Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.