The advantages of a resolution
The proper use of a resolution, as opposed to relying on a pattern building up from past gifts, can make it possible for the s21 exemption to apply to what HMRC would otherwise argue was a “single” gift. The resolution enables the taxpayer to state what he or she regards as “normal” and the pattern he or she intends to create.
The letter contains an example of a detailed statement of resolve from a taxpayer addressed to his two children as his executors. It is phrased on behalf of the taxpayer and his wife and should be signed and dated by both husband and wife at the bottom of each page and at the end of the statement.
You should always keep in mind the importance of complying with the resolution and regularly updating it, so the resolution records what is happening and why any changes have occurred from what was initially envisaged. Box 3 shows five of the more important factors an adviser should consider when helping a client use this exemption.
Finally, there are some technical points that must be kept in mind. Key among these are:
- It is possible for a gift to be made from surplus income and not to qualify for the s21 exemption.
- The burden of proving (on a balance of probability basis) that the s21 exemption applies is on the taxpayer’s personal representatives.
- Turning up adequate proof after the death of a taxpayer of an intention to gift surplus income – beyond the existence of the gifts themselves – is often not possible.
- Detailed documentation of a resolve to use the s21 exemption creates flexibility, primarily because it sets out the pattern of giving that the taxpayer intends to follow and should put beyond doubt that a regular commitment to gift has been made.
- At the time of documenting the resolve the client should be in reasonable health. Unlike a will that can be made at any time prior to death, the resolve to commit to gift must be made with a reasonable prospect of building up the envisaged pattern of gifting. However…
- …once a resolution is in place, if a client’s health suddenly deteriorates and there is a wish to gift accrued surplus income, that can be done and be effective to achieve the s21 exemption. (But ensure that the gift is part of the intended and stated pattern and is completed before death.)
- Importantly as with any proposed gift, discuss the problems that will come with the death, divorce or debt (“the three Ds”) or mental incapacity of the intended recipient and the alternative of using trusts.