We are dealing with the administration of an Estate. In the same tax year as death there were offshore chargeable event gains for the surrender of policies written in Trust. No tax was treated as paid and the proceeds were paid to the Trustees. The terms of the Trust are not known.
The Accountants dealing with the personal tax return to the date of death advised that the chargeable event gains were taxable in the administration period as the policies were surrendered after death. A second firm of Accountants declared the chargeable event gains informally to HMRC at the end of the administration period and the LPRs paid tax at 20%. On this basis it is understood that the chargeable event gains and tax paid by the LPRs would be vouched to the residuary beneficiaries who may be assessed personally on this income at higher rates.
However, should chargeable event gains for the surrender of policies held in Trust (including foreign policies), in the same tax year as death, be assessed on the date of death personal tax return?
When a Settlor is alive there is a right of re-imbursement from the Trustees which would be a chargeable transfer if the tax is not recovered. Does this right extend to the circumstances above so that if tax is paid on the personal date of death tax return for trust chargeable event gains and is not recovered from the Trustees, it is not a deduction from the value of the Estate for IHT purposes?
Adrian Forster TEP