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Court of Protection – Tax issues for Deputies

There is not much that comes to mind when I think of Gary Barlow and the Court of Protection in the same breath except perhaps the issue of tax.

Mr Barlow is having his own trials and tribulations having reportedly become involved in a tax scheme that HMRC is not that keen on. He may have more tax to pay.

And that is very often the situation I find when I take over the affairs of someone who has lost mental capacity. After being appointed as Deputy I will undertake an audit of investments and look at what steps have been taken on the Patient’s behalf. One step that is routinely overlooked is lodging tax returns.

There are a number of situations when this can arise. It is often the case that a financial deputy makes an application to become the financial deputy because they have little choice. If there is no Lasting Power of Attorney in place so someone has to step in to and try and sort out their loved one’s affairs. There will often be a trigger event – a house needs to be sold, care funding resolved. Our financial affairs are not always in apple pie order. If you suddenly have to sort out someone else’s, even if it is a family member, it can be challenging. I find submitting a tax return is something that can often slip through the net.

A Deputy has to do a return annually to the Office of the Public Guardian. It can become confusing as to why another return needs to be done. Nevertheless, it does.

Perhaps a more difficult area involves Patients who have received personal injury awards. Some income streams are taxable and others are not. For instance, a periodic payment is not taxable but interest from the Court Funds office is. When the Court writes to the Deputy and provides a statement it says on it that, if you do a tax return, this interest may need to be declared. The number of times I often meet families who say, well, John never has done one so we didn’t know we had to do it.

Sadly, there are many times when a financial deputy may be less inclined towards the financial interests of the Patient and more concerned with their own inheritance. Actually not paying tax becomes a deliberate act.

So what should a financial deputy do to comply with their duties to HMRC and the Court of Protection?

  1. Take advice. The Court of Protection does not expect us to be able to prepare a tax return but it does expect us to take advice. If you are not sure, you could ask a tax expert like Carol Cummins who works in this area.
  2. If in doubt ask HMRC. If you complete a 64-8 and send it in with your Deputy Order HMRC will advise you as to whether a return has been done previously and if one needs submitting. Regardless of whether they say one is needed though you still need to review the tax position annually as you are responsible for the self assessment of any liability or claiming any refund due.
  3. Don’t put your head in the sand – the issue will not go away. HMRC can go back 20 years in the most extreme cases and can even do this after the Patient has died. As the Patient’s legal representative you are responsible for the tax compliance. If you get it wrong penalties of up to 100% of the unpaid tax and interest may be due.
  4. If you find you need to make a disclosure for past years penalties can be significantly reduced (possibly down to 10%) where you make a timely, full and voluntary disclosure of the issue and make payments on account of the tax due as soon as possible.

As I say, if in doubt take advice. It is one of those areas along with investments, pensions (and checking nominations) that otherwise might keep you awake at night.

If you need any help, feel free to contact me.