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Division of interests
Must income from let property reflect capital interest?
My client has asked my opinion on the following plan. He owns two properties that are let and he would like to transfer a 10% interest in one property to his daughter and a 10% interest in the other to his granddaughter. He would then divide the rental income from each property in the proportions of 75% to himself and the other 25% from each property to the daughter and granddaughter.
I must admit that I am not too sure why he only wants to transfer a 10% interest rather than 25% in the first place, but perhaps it is to minimise the potential capital gains tax liability that will arise.
I believe that I have read about the possibility of differing income and capital divisions of let property in the past, but I am not sure whether this is still possible. Would this be caught by any anti-avoidance provision?
I should be grateful for comments from Taxation readers before I advise my client further.
Query 19,659 – Grandad.
Allowances claimant
Subsidiary claiming structures and buildings allowance.
I have recently taken on a new client. The circumstances are that the client has a conventional group structure, namely, a holding company with a wholly-owned trading subsidiary.
The holding company which owns the newly acquired trading premises has granted a lease to the trading subsidiary for occupation of the premises. The premises building is very old. Substantial sums have been spent by the trading subsidiary in renovating the building to make it fit for the purpose of its trade.
My query relates not to integral features, but to the structures and buildings allowance (SBA). According to the HMRC guidance, SBAs are claimed by the person who has the relevant interest in the building. The general principle appears to be that the relevant interest, in relation to any qualifying expenditure, is the interest in the building or structure to which the person who incurred the expenditure on its construction was entitled when the expenditure was incurred.
Does this mean potentially that the trading subsidiary can claim SBAs on the extensive renovation works carried out on the building because it has a relevant interest by having a lease from the holding company?
Readers’ views would be welcome.
Query 19,660 – Serf.
Labour or services?
Supply of staff or construction services?
I act for a company that trades as a labour agency, providing workers to building contractors and property developers.
The company charges an hourly rate for the time of each worker and has always charged 20% VAT on its services – in other words, as a supply of staff. The workers are employed by my client on a PAYE basis.
The contractor on one particular contract has changed the usual terms of engagement and said that my client will be held responsible for any defects and unsatisfactory works carried out by the workers – my client has taken out a specialist insurance policy to cover this risk.
The contractor has also said that 70% of the site relates to new residential buildings and 30% to retail units, so my client should only charge VAT on 30% of the fee.
I have concerns about this suggestion – my client has no expertise in building regulations and other matters pertaining to the construction industry or the site in question – he trades as a labour agency. How can his company therefore be deemed to be supplying building services? He does not supply any building materials, only labour.
My client is in a difficult situation because the contract involves self-billing procedures, so the contractor has just treated 70% of the fees as zero rated without my client having any say in the matter.
Taxation readers’ thoughts would be appreciated.
Query 19,661 – Bill.
US retirement fund
Enforced encashment of US individual retirement account.
I have been approached by a lady in her 80s who lived and worked for many years in the US but after the death of her husband returned to the UK some 15 years ago. As well as occupational pensions received from the US, she also had an individual retirement account (IRA) with a value of about $0.5m.
In 2019-20, due to restrictions placed on non-resident investment in the US, and the unwillingness of any UK investment house to assist, (they would only consider helping if the fund value exceeded £5m) she was forced to liquidate the IRA and then to repatriate the funds to the UK.
Can Taxation readers advise on the tax treatment of this enforced encashment? Is there any alternative to it being treated as income in both the 2019 US tax return and 2020 UK tax return where it would appear she will, in effect, suffer a 45% charge on the value of her savings?
I look forward to replies from readers.
Query 19,662 – Saver.
