Advice please regarding penalties for failure to disclose income

John_Pierpoint

This arrangement does protect the wife's wealth from being used up by the second(?) husband provided the estate can afford the solicitors charges for administering the trust.
What arrangements have been made for the appointment of the trustees?

gterr

Thank you all.

Bank accounts are Scottish ones, new ones made when they moved to Scotland.

Correct, John: the trust was set up to protect her children's inheritance in the event that she predeceased my stepfather (likely, since she was nearly 20 years his senior), and he remarried or left his inheritance to relatives back in Germany. But also to protect stepfather's interests during the remainder of his lifetime, should either of her children seek to turf him out of the house, or similar. I don't think a variation of the terms of the Will will be possible. I'm willing, but my brother is not.

Stepfather is the only named Executor, and the sole Trustee. Solicitor is allowing me to do the work of both, with stepfather's permission and with solicitor advising, helped by the presence of the PoA.

That much I can get my head around, but this new tax problem is an additional weight, and worry for both of us.

zzzLazyDaisy

Okay, well there is not much you can do except contact a tax enquiry centre and explain the problem. You can find your nearest tax enquiry centre here.

http://www.hmrc.gov.uk/enq/index.htm

But do check first if tax is deducted in his home country before being paid to him. He should have regular payment slips (like wage slips) which will itemise any deductions. If tax has been paid, then any outstanding tax to HMRC should be nil or minimal. Even if he does owe tax, it might be possible to arrange a payment plan rather than having to pay it all at once.

John_Pierpoint

By accident of intestacy on the part of my father, I have been a trustee of a similar situation since the age of 21 (I am now a pensioner) - though my mother has died, the trust rumbles on as a minimal bare trust, as there is a land interest now divided between 7 of us.
As the income is minimal, I no longer need to make income tax returns on behalf of the trust, so there is very little administration left.

jamesd

HMRC will want all of the tax that is due, plus interest. Given the circumstances they would probably go with only 20% or so of the tax owed as a penalty, provided disclosure is reasonably prompt.

An estimated initial value might be used, while you get the proper numbers together for the past years and check on the tax. Be sure to tell HMRC that it's just an estimate and what the general uncertainties are if that's what you do. Just let them know that this is an initial disclosure of a problem and that you will be following up later with more accurate figures and details of any tax already deducted at source so you and they can work out the correct tax liability.

Also be sure that in the initial letter you tell HMRC about the circumstances and why it wasn't disclosed, much as you have told us here. HMRC will need to know why it wasn't disclosed and the reasons here seem acceptable enough.

Do tell HMRC before filling out the income forms that have been sent. It's important to the penalty level that it is an unprompted disclosure and those forms could make it prompted. Though HMRC could choose to take the view that merely sending the standard forms was a prompt and a higher penalty is due. My guess is that they won't do that in the circumstances here.

Don't expect HMRC to do silly things like criminal prosecution over the circumstances and amounts involved here. It's just routine sorting out of things for them and as long as it's being disclosed and handled by someone who can get them the right numbers they should be content to let you get on with it.

gterr

Many thanks all.

I will write to HMRC straight away. I'm guessing the Liverpool address for PAYE enquiries is the best one, and not the Cardiff one for self-assessment?

Would it be best also to telephone my nearest tax enquiry office just so that something gets logged prior to receipt of my letter? I know it can take weeks for letters to be logged on to the HMRC system.

Thanks for confirming that I should sit on the HMRC enquiry letter that's just been received. (We would have to, anyway, until DWP have decided on bereavement payments and whether my stepfather's SP will increase courtesy of my mother's contribution record.)

Have just spoken to stepfather who is now in shock. But, he tells me his occ pension has only been in payment 5 years, not the 9 years I supposed. That's something I guess!

Blind1979

To be honest do you really want to do this yourself? I would personally ask a tax advisor (not an accountant!) to draw up a letter to HMRC with any mitigating circumstances.

Cook_County

Stop! We know enough to know this is a German pension and that the recipient is a non-UK domiciliary. We do not know if the remittance basis might reduce UK tax (unlikely if the money has been remitted here or the recipient has been here for more than 6 years) or - more importantly in which country the pension should be taxed under the UK/German tax treaty.

Has anyone consulted the treaty? Was there tax mistakenly withheld in Germany that should be reclaimed?

Is there really much tax due on 90% of the pension after age and married couples allowances?

gterr

Cook_County wrote: »

Stop! We know enough to know this is a German pension and that the recipient is a non-UK domiciliary. We do not know if the remittance basis might reduce UK tax (unlikely if the money has been remitted here or the recipient has been here for more than 6 years) or - more importantly in which country the pension should be taxed under the UK/German tax treaty.

Has anyone consulted the treaty? Was there tax mistakenly withheld in Germany that should be reclaimed?

Is there really much tax due on 90% of the pension after age and married couples allowances?

Stepfather is German by birth but is domiciled in Scotland. He has been resident in the UK since 1984. I think there may be about £3500 tax due, plus whatever penalty is added. I'm afraid I don't understand any of the rest of your post.

gterr

Blind1979 wrote: »

To be honest do you really want to do this yourself? I would personally ask a tax advisor (not an accountant!) to draw up a letter to HMRC with any mitigating circumstances.

Thanks. No, I don't want the hassle. But cost is an issue now, and also time, since HMRC are going to request income info from stepfather in order to deal with any bereavement benefit recoding. It's important to give HMRC the info before they discover it themselves by asking, in order to have a lower penalty. (That's my understanding, anyway.)