Tax policy, law and administration are still largely neglected in the area of trusts, settlement and estate planning in Nigeria. However, this is likely to change very soon. It is therefore expedient to plan ahead for the taxman’s calls or seek how to lawfully reduce the current tax burden when it commences.
7.1 RELEVANT LAWS IN ESTATE PLANNING
1. Personal Income Tax Act
2 Direct Assessment
3 PAYE
4 Withholding Tax (WHT)
5 Companies Income Tax Act
6 Capital Gains Tax Act
7 Value Added Tax Act
8 Stamp Duties Act
9 Tenement Rate Law/Land Use Charge Law
7.2 DISTINCTION BETWEEN TAX EVASION AND TAX PLANNING
It is instructive to note that no one pays tax with a smile. On the one hand, while tax planning is an attempt to lawfully escape payment of a particular tax or minimize tax liability through lawful means such as making the best use of all available allowances, deductions, exemptions, etc., to reduce income and/or capital gains, tax evasion is the illegal act or practice by individuals, companies and trusts, of failing to pay taxes which are owed. Tax planning is lawful while tax evasion is an offence.
7.3 THE IMPORTANCE OF TAXATION TO ANY GOVERNMENT
In the words of Justice Latham of the United States’ Supreme Court in the case of Nichols v Ames, taxation is said to be:
“…the one great power upon which the whole national fabric is based. It is as necessary to the existence and prosperity of a nation as the air he breathes to the natural man. It is not only the power to destroy, it is also the power to keep alive.”
The significance of the above is that administrators of estate should be aware of the extent of their tax obligation and how to lawfully minimize their tax expose.
7.4 TAXATION ISSUES IN ADMINISTRATION OF ESTATES
There is no inheritance or succession or estate or gift tax in Nigeria since the abrogation of Capital Transfer Tax in 1996.
Inheritance tax in some climes can be as high as 40% of the value of the estate. In the United Kingdom for instance, the tax payable on estates below the threshold of £325,000 in 2014 to 2015 was placed at 40% while the amount over this threshold was 36% if the estate qualifies for a reduced rate as a result of a charitable donation.
7.5 ESTATE DUTIES
The rate of Estate duties chargeable by the Probate division when an application is made for probate or Letters of Administration, is usually 10 percent of the value of the estate. For real estates where there is a will, it could be as much as 35% of the value of the estate.
7.6 REGISTRATION/PERFECTION OF TITLES
Consent fees on registration of properties or perfection of title vary and may be as high as 30 percent of the market value of the interest being conveyed.
7.7 TENEMENT RATE
Tenement rate is levied on a building on land and all other immovable properties which are permanently attached to land except vacant land.
Section 36(H) of the Tenement Rates Law places the liability to pay rates on occupiers or subsequent purchasers of a tenement. The real owner, if different from the foregoing, is secondarily liable.
7.8 LAND USE CHARGE
Land Use Charge is imposed on all real estate properties in Lagos State. Section 4 of the Land Use Charge Law imposes the obligation to pay on the owner. There is no exemption for properties belonging to an estate of a deceased. In practice however, the burden is shifted to the tenants.
7.9 STAMP DUTIES
Stamp duty is payable on instruments (documents) at the rates prescribed in the Schedule to the applicable law. Once again, there is no exemption for documents involving an estate of a deceased.
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