Although the General Election creates tax uncertainty, it appears that the very “sticky” concept of domicile for Inheritance Tax (“IHT”) purposes will disappear.

The likely move to one of counting years of tax residence will provide welcome simplification.

The General Election also gives a chance for the professional bodies to comment. A useful summary update from the Chartered Institute of Taxation (“CIOT”) is as follows (with our highlights in bold):

“CIOT supports a change to a residence based test from a domicile based test however they consider that ten years residence for arrivers to the UK is too short a period for full exposure to IHT on their worldwide assets. They also feel that a ten year tail for leavers is too long and should be related to the length of residence in the UK.

Consideration will need to be given to treaties and treaty relief; in particular whether domicile in a tax treaty should be interpreted as residence.

There will be many transitional issues that will need careful thought including provisions surrounding different types of leavers and arrivers.

A key issue will be the issue of settlements and the CIOT supports the idea that their chargeability should be governed by the residence to the settlor. In respect of existing settlements, they support the grandfathering rules which were proposed at Budget 2024 to allow settlements existing before that date to retain their existing IHT treatment. They do not support grandfathering for assets settled on or after 6 March 2024 (budget day) unless made by Will.”

Before each general election, the abolishment of IHT tends to feature in the media’s interest.

It is a misunderstood tax.

A summary of our thoughts on this, from 2019, is here: https://blackshawtax.com/2019/11/12/inheritance-tax-houses-common-errors/

A 2023 Tax Journal article from Heather Self is an excellent update of what reform should look like: https://www.taxjournal.com/articles/self-s-assessment-inheritance-tax-

STEP (Society of Trust and Estate Practitioners) is aiming to give greater awareness of the risks your family face in losing your digital records and memories (photos, Facebook, Instagram etc).

Here is a link to their tips page: https://memories.step.org/

and also their research page https://www.step.org/knowledge-hub/digital-assets-content-hub

I love technology but find crypto currencies and assets duller than football*. But it exists, and is taxed, so we need to know how and when.

A myth has built up that it somehow escapes tax or that HMRC cannot understand it.

At the time of writing (April 2021) many keen investors are showing enviable crypto gains. So perhaps we’ll see lots of selling at a profit (before the greater fool theory comes into play and we look at loss relief for those to who buy now?).

The latest HMRC manual update gives a good and fair summary of the position https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto20000

Any HMRC guidance comes with the warning that it may not reflect the legislation and parts are hidden (eg https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto100100). But the guidance is useful and demonstrates where you may face tax and penalty risks if you take a different view. Useful sections are:

Capital gains tax disposals https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22100

Record keeping https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto10400

Why it isn’t tax free gambling https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto10450

A final thought: what if you don’t sell? Are you sure that the beneficiaries of your will can access the funds on your death, with correct passwords and two level authentication?

_{*To be fair to football fans I also like cycling but find the cycle to work tax rules equally dull}

A fairly common question is “If you win a compensation claim, is it taxable?” The answer is “well, it depends”.

Over 73 paragraphs in Wilkinson https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07861.html the Judge explains that interest rate swap compensation for a property business is taxable as income. Paragraphs 24, 31 and 48(1) explain why. A key point is: what is the compensation replacing (eg business profit) and how would that have been taxed?

In paragraph 39 the Judge notes that the tax position can be described as “simple”, even though the taxpayer arguments are quite complex. Perhaps it is simple, and after victory against a big bank (rightly so) the taxpayer (now wrongly) feels they are on a winning streak and can beat HMRC by having the compensation tax free.

The case is similar to the HMRC victory in Gadhavi https://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06762.pdf which is also an unbinding First Tier Tribunal case. Repeated cases may be a hint that one will head to the higher courts for a binding view, although both cases seem correctly decided.

Not all compensation is taxable. Some is exempt as a matter of policy (TCGA 1992, s51) or may be subject to relief, if used to restore the asset (TCGA 1992, s23) and some is subject to capital gains tax (based on the right to make the claim – but often effectively exempt under ESC D33).

Tax rules may differ for the actual compensation sum and interest paid on that amount.

Compensation offers should be checked, to see what is included, how it is described and any tax treatment noted in the offer. Note that there is a difference between tax formally deducted and the tax treatment taken into account under the Gourley principle but not an actual tax credit.

Tax advice, detailed and in writing, should be taken at the time of the offer and, despite the Judge’s comment in Wilkinson the analysis may not be simple. If there is any doubt the “white space” disclosure in a self-assessment tax return may provide an opportunity to provide protection from penalty risk should HMRC disagree.