Thursday, June 18, 2009

Will this mean less tax advice given in writing?

The Daily Telegraph's latest revelation concerns Kitty Usher and a letter she received from her accountants. The article quotes from the letter as follows:
“I am enclosing a declaration to vary your previous main residence election for a period of one month to [Burnley home] and then back to [London home].

“The effect of varying the election is that [Burnley home] will receive the final three years’ main residence exemption and the gain will be completely exempt from capital gains tax provided [Burnley home] is sold before April 2007.”

As the article is careful to note - the advice and Ms Usher's actions in 'flipping' her main residence were entirely legal. In this context I have explored previously on this blog:

Despite the legality of the advice and actions I'm not altogether sure that the letter from Ms Usher's accountants looks good in the light of public scrutiny. And this is closely linked to one of the reasons why I gave up giving tax advice. It also has a bearing on the draft HMRC Charter with it's promise that: "You can expect HMRC to... Pursue relentlessly those that break or bend the rules" - I addressed the ambiguities in a blog post: How far can you bend the rules?

Whilst few accountants will have dozens of MPs as clients, many accountants will have at last one or two public figures (from sportsmen and actors to Z-list TV celebrities) as clients. And the accountants will provide tax planning advice to them all in much the same way.

During my talks on 'avoiding negligence claims' I remind accountants of the importance of putting advice in writing, of setting out the facts on which the advice is based and any assumptions that are inherent in the advice. I also add the caveat: "Never put anything in writing that you would be embarrassed to have read out in a Court of law". To this I might add: "Or published in a National Newspaper". This applies to all clients but especially those whose tax affairs could be of interest to the media. If one would be embarrassed then perhaps the advice should be reconsidered.

The advice given to Kitty Usher involved the blatant exploitation of a tax rule. It's a rule that has been 'bent' in this way for many, many years. Whether the advice given is always as blatant as in the letter from the accountant's tax manager in this case, however I'm not sure.

As one of the commentators implied on my earlier blog post about 'flipping properties to avoid CGT': These revelations about MPs could lead to a tightening up of HMRC's interpretation of the rules even before the law is changed. Anyone remember Arctic Systems?

1 comment:

  1. Blatant ? Well, not as blatant as the very example given by HMRC in their own manuals, which says one week rather than a month. (CGT 64510 refers.)