Weekly Tax Update - Monday 21 November 2011

1. General news

   1.1. Modernising the administration of the personal tax system: Tax Transparency for Individuals

   The Government has issued a discussion document which suggests how increased transparency and accessibility to tax information can build greater awareness and understanding of how the system works and how individuals can take a more active role in ensuring they pay the right tax. This consultation seeks feedback and ideas for how the administration of the personal tax system could be improved to achieve better understanding and make it easier for customers to deal with it.

   The paper includes the interesting possibility of pre-populating tax returns with information already held by HMRC:

   "Pre-filling of information in returns is widely used by tax authorities in other countries to reduce the burden on individuals. The tax authorities do not require individuals to fill in information about income that the authority is able to obtain directly from the source, for example, details of salary and tax deducted by employers or details of investment income from a bank.

   The Danish authorities believe that pre-filling tax returns with information already held by the tax authority gives its taxpayers greater assurance about the accuracy of their return and saves them time as they only have to provide information that the authority is not able to receive directly from the payer of the income. The Danish also think that pre-filling tax returns has helped improve tax compliance by its citizens through greater engagement and that it provides a clear route to challenge data that the citizen believes to be inaccurate. This has helped greatly in improving the quality of the data used to calculate Danish tax liabilities."

   http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel= pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_031736

   1.2. Integrating the operation of income tax and National Insurance contributions

   The Office of Tax Simplification recommended that the Government set out a timetable for reform of income tax and NICs and commence work by the end of 2011. The Government has issued a 'Next steps' document responding to that recommendation. It summarises the results of the call for evidence, sets out some objectives and principles for reform and an indicative timetable for consultation and implementation. It also explains some of the challenges that must be overcome if reform is to succeed:

   Chapter 2 provides a brief overview of the way income tax and NICs currently work. Chapter 3 summarises the results of the call for evidence, and the conclusions. Overall, there is a strong case for developing proposals for reform, focused on the areas identified in the call for evidence. However, the evidence suggests it would not be appropriate to rush this reform and that instead the Government should embark on extensive consultation, in recognition of the scale of this reform and its potential impacts. Chapter 4 describes the Government's parameters, objectives and principles for reform. It also describes the challenges that must be overcome for reform to succeed. The Government intends to work with stakeholders to explore how reform could be delivered and satisfy itself that its benefits sufficiently outweigh the transitional costs of putting it in place. Chapter 5 sets out a programme of engagement and consultation and an indicative timetable for reform. www.hm-treasury.gov.uk/d/condoc_integration_it_nics_contributions.pdf

   1.3. Beneficial interest in a jointly owned property

   The Supreme Court has considered beneficial interest in a house acquired in joint names by an unmarried couple who intended it to be their main home. The case involved two parties Ms Jones and Mr Kernott. In 1983 Mr Kernott moved into Ms Jones's mobile home and they had a child in 1984. In 1985 Ms Jones sold the mobile home and the couple (remaining unmarried) bought a house (for £30,000) in joint names using the proceeds from the mobile home as deposit (£6,000), with the balance of the purchase price raised from an endowment mortgage in their own names. A £2,000 loan was taken out to build an extension and Mr Kernott did some of the labouring work on the extension and paid for other parts of the required work. A second child was born in 1986. In 1993 Mr Kernott moved out, but paid no further contribution to the house, or family maintenance. A joint life policy was cashed in 1996 to enable Mr Kernott to put a deposit down on another house for himself (in his own name). At the time of the dispute (April 2008) the property occupied by Ms Jones was worth £245,000, while Mr Kernott's property was worth £205,000.

   The County Court judge concluded that a fair allocation of the value of the property occupied by Ms Jones was 90% to Ms Jones and 10% to Mr Kernott. This was upheld at the High Court, but the Court of Appeal concluded by a majority that the interest should be divided equally.

   The Supreme Court clarified the approach taken in the previous case of Stack v Dowden [2007] UKHL 17, [2007] 2 AC 432 and in the leading judgement by Lord Walker and Lady Hale set out the principles applicable in a case such as this, where a family home is bought in the joint names of a cohabiting couple who are both responsible for any mortgage, but without any express declaration of their beneficial interests:

   The starting point is that equity follows the law and they are joint tenants both in law and in equity. That presumption can be displaced by showing (a) that the parties had a different common intention at the time when they acquired the home, or (b) that they later formed the common intention that their respective shares would change. Their common intention is to be deduced objectively from their conduct: "the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party's words and conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party" (Lord Diplock in Gissing v Gissing [1971] AC 886, 906). Examples of the sort of evidence which might be relevant to drawing such inferences are given in Stack v Dowden, at para 69. In those cases where it is clear either (a) that the parties did not intend joint tenancy at the outset, or (b) had changed their original intention, but it is not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property, "the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property": Chadwick LJ in Oxley v Hiscock [2005] FAm 211, para 69. In our judgment, "the whole course of dealing ... in relation to the property" should be given a broad meaning, enabling a similar range of factors to be taken into...