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Experience:  International tax
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This is about the situation where a Scottish charity is due

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This is about the situation where a Scottish charity is due to receive a donation from a deceased person’s estate with the intention that the inheritance tax rate falls from 40% to 36% .
My cousin died on January 20, 2012 in England, leaving an estate of about £1 million. I am an executor and one of the 3 beneficiaries. The beneficiaries have all agreed to do a deed of variation where, among other variations, 10% of the net estate goes to a Scottish charity , First Scottish , which was first registered with OSCR in 1995 .
In order to qualify for the tax exemption we have been advised belatedly to apply for approval from HMRC by the submission of a CH A1 form etc. This was submitted at the beginning of November and we were advised to expect a 10 week delay in obtaining approval .
Our lawyer, for whom it is increasingly apparent that this is unfamiliar territory, is now saying that First Scottish may still not qualify for the IHT exemption because
- the charity altered its name and made a minor change to its objectives earlier this year. Both have been approved by OSCR.
- Charity was not approved by HMRC at the time of the death of the deceased in January 2012
I’ve spoken to both the HMRC charity helpline and the capital taxes office and my understanding is that First Scottish, once it receives approval, will be able to backdate this for 4 years and will therefore qualify for the tax exemption.
I would be grateful for your opinion on the following
- Do you consider that first Scottish, once it receives approval from HMRC, will qualify for the IHT exemption from an estate where the deceased died on January 2012?
- We expect to get the D of V signed up and dated shortly and will only submit it to HMRC once First Scottish has received approval.
Should we authorise the legacy to be paid to First Scottish at that stage, or should we wait until we have definite confirmation that HMRC will repay the appropriate amount of inheritance tax (which has already been paid )?
- While we have no reason to believe that first Scottish will not get approval there is always that possibility. Would it be prudent to draw up a 2nd D of V, signed and dated 19 January, appointing a different but already approved charity, which we could submit instead to ensure the IHT tax exemption?
I look forward to hearing from you
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I'm Keith and happy to help you with your question.

I regret to have to tell you that you are barking up the wrong tree. There is no Inheritance tax (IT) rate of 35% in Scotland, nor indeed in the UK. Here is the relevant extract from Scottishwills.com:

'Inheritance tax is a form of tax which is payable on an estate when a person dies. The tax itself, which applies at a rate of 40%, is only payable on amounts above the estate tax threshold. The current estate tax threshold is £325,000. Therefore, if your estate is worth more than this amount, inheritance tax will be payable on the balance at the rate of 40%.'

Always remember that the value of all assets world wide are aggregated and subject to IT. This includes his residence and many people forget this item.

You and the other two beneficiaries can enter into a deed to vary the will and charitable bequests do indeed inflate the 325K level at which IT kicks in, but the surplus over that, will still suffer tax at a flat rate of 40%. Whilst by your variation you have reduced the quantum of taxation the rate will still be estate - charitable bequest - 325K @ 40% IT.

There is no problem in executing an amending deed to vary the original save for the cost of preparation. It is your deed, not the deceased, so within reason you can do what you will and as you suggest it may speed up the process and release funds earlier than having to wait for possible problems with the already selected First Scottish.

So sorry to have to rain on your parade regarding IT rates.

Customer: replied 2 years ago.

Thank you for your reply, dismissing my original premise.

Clearly you are not familiar with

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/charity-reduce.htm

and therefore are the wrong person to have picked up my query.

Unless you would like to dispute that I will have to start again and attempt to find the appropriate expert.

regards

HL

Expert:  bigduckontax replied 2 years ago.
HL
My mistake, I must have been having a mental aberration this morning.
If a will, or one varied as you intend in your deed of variation, leaves 10% or more to charity then the IT rate does indeed fall to 36%.
Sincere apologies for this error. Watch out for Potentially Exempt Transfers which might bedevil your calculations should any kick in to inflate the estate.
Deep apologies for the error.
Keith
Customer: replied 2 years ago.
Relist: Answer quality.
The expert originally dismissed my premise, then apologised, but still did not answer the questions which are below with the full brief. I do hope you will be able to find the appropriate expert this time. Thanks.
This is about the situation where a Scottish charity is due to receive a donation from a deceased person's estate with the intention that the inheritance tax rate falls from 40% to 36% .
My cousin died on January 20, 2012, leaving an estate of about £1 million. I am an executor and one of the 3 beneficiaries. The beneficiaries have all agreed to do a deed of variation where, among other variations, 10% of the net estate goes to a Scottish charity , First Scottish , which was first registered with OSCR in 1995 .
In order to qualify for the tax exemption we have been advised belatedly to apply for approval from HMRC by the submission of a CH A1 form etc. This was submitted at the beginning of November and we were advised to expect a 10 week delay in obtaining approval .
Our lawyer, for whom it is increasingly apparent that this is unfamiliar territory, is now saying that First Scottish may still not qualify for the IHT exemption because
- the charity altered its name and made a minor change to its objectives earlier this year. Both have been approved by OSCR.
- Charity was not approved by HMRC at the time of the death of the deceased in January 2012
I've spoken to both the HMRC charity helpline and the capital taxes office and my understanding is that First Scottish, once it receives approval, will be able to backdate this for 4 years and will therefore qualify for the tax exemption.
I would be grateful for your opinion on the following
- Do you consider that first Scottish, once it receives approval from HMRC, will qualify for the IHT exemption from an estate where the deceased died on January 2012?
- We expect to get the D of V signed up and dated shortly and will only submit it to HMRC once First Scottish has received approval.
Should we authorise the legacy to be paid to First Scottish at that stage, or should we wait until we have definite confirmation that HMRC will repay the appropriate amount of inheritance tax (which has already been paid )?
- While we have no reason to believe that first Scottish will not get approval there is always that possibility. Would it be prudent to draw up a 2nd D of V, signed and dated 19 January, appointing a different but already approved charity, which we could submit instead to ensure the IHT tax exemption?
Expert:  bigduckontax replied 2 years ago.

This question you has now essentially moved more towards Inheritance Tax Law and i have asked for a reclassification.

Expert:  Nicola-mod replied 2 years ago.
Hello,
It seems the professional has left this conversation. This happens occasionally, and it's usually because the professional thinks that someone else might be a better match for your question. I've been working hard to find a new professional to assist you with your question, but sometimes finding the right professional can take a little longer than expected.
I wonder whether you're OK with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you.
Thank you!
Nicola
Customer: replied 2 years ago.

Yes please

Customer: replied 2 years ago.
Relist: Answer quality.
Expert:  bigduckontax replied 2 years ago.
Post to clear question list.
Expert:  TaxRobin replied 2 years ago.
Hello and thank you for allowing me to assist you.
Your situation is complicated but when looking at the charity and if it will be recognized, the change of the name is ***** ***** disqualifier.
Using the CH1A to report a name change is a formality and there is a one month requirement but that is for changes to bank information.
To satisfy the jurisdiction condition the organisation must be subject to the control of a court in the exercise of that court's jurisdiction with respect to charities. In the UK this is the High Court, the Court of Session in Scotland or the High Court in Northern Ireland. In a relevant territory outside the UK this means a court with a corresponding jurisdiction.
I would not think that the charity would be ignored for the IHT purposes. I would caution to wait until you have heard from HMRC to pay the legacy. This is not because I do not think the charity will not be recognized (and I do believe this will be retroactive 4 years)but because the files will be in place at HMRC.
As far as having the second option in place should all not go as we believe,of course you can always look at that and if it is not against the wishes of the deceased (this gets into law now and really outside taxation). If the variation includes a statement that it is to take effect for Inheritance Tax, Capital Gains Tax or both, the variation is treated as if the deceased had made it. In other words, the variation is effectively backdated to the date of death for these taxes.
I hope I have addressed your questions. You appear to have already spoken with all the advisers available (your lawyer,charity helpline and the capital taxes office).
Customer: replied 2 years ago.

Dear tax Robin

thank you for your opinions which I value .

I would like to come back to my question below

While we have no reason to believe that first Scottish will not get approval there is always that possibility. Would it be prudent to draw up a 2nd D of V, signed and dated 19 January, appointing a different but already approved charity, which we could submit instead to ensure the IHT tax exemption?

Our problem is that all 3 beneficiaries live in different places and getting their signatures is a long, drawn out process . So my question is " Is it permissible to draw up & sign 2 D of V, one allocating the money to First Scottish and another allocating the money to the already approved charity dated the day after? Then, , if first Scottish did not receive approval , we would submit the 2nd D of V .

Expert:  TaxRobin replied 2 years ago.
I can find no tax authority reason that you would not be allowed to take that proactive step.
Customer: replied 2 years ago.

My question is whether it is legal to set up two different arrangements and wait for events to decided which arrangement we submit to HMRC? And would our lawyer approve?

Look fwd to your opinion

H

Customer: replied 2 years ago.

Still waiting for reply to clarification request below

H

Expert:  TaxRobin replied 2 years ago.
That is a legal question and not tax. You are wanting a professional in one area to answer a question outside their knowledge.
That last question should be asked to your attorney.
I cannot nor will I, give advice on that. I advised about the tax issues.
TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 15607
Experience: International tax
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Customer: replied 2 years ago.

Well, I assumed since you picked up the question that you could answer it in its entirety and not hedged with cant's and wont's. Sorry I cannot give you a better rating .

Expert:  bigduckontax replied 2 years ago.
Post to opt out and clear question list.