Taxation of a non-resident trust.
A non-resident trust with two settlors (husband and wife) hold a few UK properties along with some foreign assets.
The settlors are British but have been non-resident for several years. The trust was settled on 30 March 1995 as a discretionary trust when the settlors were non-resident. Both the settlors are the named beneficiary of the trust. Sadly, one of the settlors died on 15 January 2025.
A few questions/dilemmas arise:
- I assume these are treated as two settlements with two nil rate bands available?
- It is not clear whether it is treated as a settlor interest trust as when the trust was settled, the settlors were non-resident in the UK?
- I assume the ten-year anniversary charge is applicable and the period prior to April 2017 needs to be excluded in the computation.
- How is IHT calculated on the settlor’s death assuming the trust’s UK property is included in their estate?
- Might there be any relief on the IHT ten-year charge for potential double taxation on the basis of 3) and 4) or vice versa and how would the relief be made available?
It looks like a simple arrangement, but that complexity arises due to UK property, multiple settlors interest and a death of one settlor just prior to the ten-yearly charge period.
What do readers think?
Query 20,560 – Dahlia.
Advice from unregulated firm.
Our client is a small UK-based tech startup which claimed R&D tax relief for the 2022-23 and 2023-24 tax years based on advice from an unregulated tax consultancy that approached them via LinkedIn.
The consultancy promised a ‘no win, no fee’ service (if the R&D application was unsuccessful, it would not charge) and submitted claims totalling £250,000 across both years. The client received the refunds and reinvested the funds into product development.
In early 2025, HMRC opened an enquiry into the claims, citing concerns about the eligibility of the projects and the lack of supporting documentation. The company has since discovered that the consultancy exaggerated qualifying activities and used templated justifications. The consultancy has since ceased trading, and our client is facing a potential clawback of the full amount, plus penalties and interest.
What are the potential liabilities for our client if HMRC disallows the R&D claims? Can it seek any recourse or mitigation given that the advice came from an unregulated third party? What steps should the company take now to demonstrate good faith and reduce penalties? How can we, as a regulated tax adviser, help in resolving the enquiry and rebuilding compliance?
Query 20,561 – Shark attack.
Is credit note or bad debt relief claim correct?
I have a client who is deregistered from VAT because of reduced sales but has a problem with a deal that was disputed by a customer when she was registered:
- My client did a job for £30,000 plus VAT and accounted for output tax according to the invoice date; she did not use the cash accounting scheme.
- The customer refused to pay the invoice – claiming poor workmanship – so it went through a lengthy legal and arbitration process, which ruled that the customer should pay £15,000 plus VAT plus my client’s legal costs which were £5,000 plus VAT.
As my client is now deregistered, my thinking was to submit a VAT 427 claim to HMRC for bad debt relief of £3,000 (ie £6,000 output tax less the 50% reduction now agreed) and £1,000 for post deregistration expenses relevant to the legal procedures – a total claim of £4,000. However, a colleague says this is wrong because there is no bad debt situation – in other words, the customer has paid what the court said it owed. My colleague thinks that my client will need to re-register for VAT and issue a credit note. What do readers think?
Query 20,562 – Challenger.
Queries and replies
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