New Client matter - H died in 2016 and there was a NRB Discretionary Trust (spouse and children as trustees/beneficiaries). The estate at H’s death included half share of property and shares amounting to £190,000.
The trust was never dealt with, W has now only realised. We can deal with the property transfer into trust as was held TinC, my main concern is the shares as they were “gifted” by W to the 3 children after his death as she had assumed they belonged outright to her.
My question is do I need to do a Deed now to show the shares were appropriated out of trust back in 2016?
HMRC is aware of taxpayers trying to argue that the DT was a non-event:IHTM43016. This might be advantageous to improve the transferable NRBs on W’s death. I think you are right to reconstitute the DT as best you can and rationalise and then document the facts, getting W and the children to be parties so preventing them from resiling.
If H had no cumulation the DT may well have been an excepted settlement avoiding IHT reporting, the share transfers to W taxable at a nil rate and those by her as PETs. The CGT position may be a little more tricky. The property may well attract PPRR even if now distributed to W. Again possibly distributable at a nil rate of IHT if that occurs before the first 10 year anniversary even if it has since appreciated substantially in value. A 15% valuation discount should apply if W is occupying.
Presumably the share transfers have been returned by W as CGT disposals but may well have been exempt. The transfers to her presumably have not been returned by the trustees but again exemption may have applied; if not a voluntary return might be in order and arguably a hold over relief claim could be allowed, although s43A(1)(b) TMA 1970 strictly denies that if there has been carelessness.
CH53400 says: “Careless” means a failure to take reasonable care in relation to your tax affairs" but also “People do make mistakes. We do not expect perfection. We are simply seeking to establish whether the person has given the care and attention that could be expected from a reasonable person taking reasonable care in similar circumstances.” HMRC are now self-appointed experts in Metaphysics so hopefully the executors have a reasonable excuse. If you are being instructed on a sale and no one has previously bothered with H’s probate there may be a reason for that other than lack of knowledge of the law. HMRC surely must have a settled approach to what are not unusual circumstances.