Notifying HMRC of an unregistered NRBDT

Trusts Discussion
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I note that this a fairly common topic on this forum, but I haven’t seen a post or reply that addresses my clients’ situation.

The facts are as follows:
H died in 2003 with an NRBDT clause in his will that allowed his trustees to make an interest free loan repayable on demand for his NRB to W.
The family dealt with the estate very capably, including completion an IHT200.
They did involve solicitors in 2005 to draft the deed of retirement for W who was an executor and appointment of a new trustee.The solicitors also prepared the “deed of spouse undertaking” that effectively loaned W £255k.

Clients have consulted me this year as W has sold the family home and moved into residential care. She has ample means to pay for her care fees and so the trustees have decided to call in the £255k loan and to appoint the money out to the children.

It transpires that they were unaware of the need to deal with a 41(G) or the anniversary in 2013 and so these were never submitted to HMRC. I don’t think that there is a problem of tax having not being paid because there has never been any income and the amount concerned is below the IHT threshold. However I am a little concerned that HMRC will have something to say (and possibly penalties to levy?) about the failure to register the trust and deal with the tenth anniversary. We will also presumably need to deal with an IHT100© although with the present confusion surrounding 41(G)'s and IHT100’s I’m not too sure where we stand.

Any thoughts on HMRC’s likely response would be appreciated, before I write to them.

David Kitcat
Kitcat & Co Solicitors

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I don’t think that Form 41G had any statutory basis. The relevant obligation is to give notice of liability under section 7 Taxes Management Act 1970 and subsection (3) states in terms that a notice is not required to be given if there is no income or gains for the year in question, or the income received falls within specific categories. As far as I can tell form 41G was administrative only, enabling a file to be opened, a reference number obtained etc.

Whether a return was needed on the ten-year anniversary turns on whether the trust fell within reg 4(3) of the IHT Excepted Settlements Regs 2008- the ‘80% of the NRB’ test. On the facts given, I imagine it does. I have never known a penalty to be sought for failure to file an IHT return where no tax was actually due, although I think it is possible.

Tim Gibbons

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I agree with Tim’s comments. 41G was not a statutory document requiring completion and lodgement. However, notification under TMA 1970 s.7 (subject to the let-outs contained in the section) of liability to income/capital gains tax for any year of assessment is required.

Assuming satisfaction of the Excepted Settlements Regs 2008 then there is no need to submit IHT 100 whether in connection with the ten-year anniversary or any subsequent exit charge.

Malcolm Finney

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Thanks very much Tim and Malcolm. Your advice and references were very useful and a great relief to the clients. This will hopefully be a fair deal less complicated than I initially feared.

David Kitcat
Kitcat & Co Solicitors