Loose Ends - VAT and conveyancing: when is the tax point?

Loose Ends

VAT and conveyancing: when is the tax point?
Under the English system of conveyancing, the deposit is usually paid to the vendor's solicitors as stakeholders at exchange of contracts and released on completion when vacant possession is given against payment of the balance of the purchase price. This gives rise to no problem as far as VAT is concerned, because both payment and the 'making available' of the 'goods' constitute events of charge under, respectively, section 6(4) and 6(2)(b) of the VAT Act 1994.
The position is not the same in Scotland. The practice there is for entry (the equivalent of vacant possession) to be given before the conveyancing process has been completed against the price being put into escrow pending the completion of the disposition (the equivalent of England's Land Registry Transfer). The question therefore arises as to whether entry accelerates the tax point under section 6(2)(b).
Following a dictum at the tribunal stage in Margrie Holdings Ltd v Commissioners of Customs and Excise [1986] VATTR 213, it had been thought that there was an acceleration. On 6 November 2000, however, it was decided that this was not the case, in Cumbernauld Development Corporation v Commissioners of Customs and Excise EDN/99/134, apparently on the basis that this was a point which had not previously been litigated.
Under Scots law, the right of the contractual purchaser before the completion of the transfer formalities is purely a personal right, and the practice of retaining the price in escrow after entry followed a case in 1976 in which it was held that a purchaser from a builder who had not had his title perfected before the vendor's bankruptcy was a mere unsecured creditor.
This is not the case in England where all or part of the price has been paid: see Philipson-Stow's Special Representatives v Commissioners of Inland Revenue [1959] 38 ATC 21. Indeed, where, by special arrangement, vacant possession has been given on payment of only part of the price, the practice in England has been to regard the Margrie dictum as sufficient authority to treat section 6(2)(b) as being in point, if (as is not normally the case) the transaction is a taxable one.
The issue will, however, need to be taken up with Customs the next time it arises.
Jeremy de Souza,
Consultant to White & Bowker,
Winchester.

Taper relief and holding companies
I refer to Kevin Slevin's excellent article in Taxation, 15 February 2001 at pages 462 to 464, and there is one point on which I would like to comment. He gives the example of 'Noteasy Ltd', where the holding company owns property which is let to a third party on an arm's length basis and has loaned monies to its four wholly owned subsidiaries.
The business activity of owning shares in four subsidiaries must exceed these two activities if Noteasy Ltd is to qualify as a holding company.
The Revenue has confirmed to us that, concerning the availability of business asset taper relief, the fact that interest is paid by the trading wholly owned subsidiary company to the holding company would not in itself be a transaction to bring into account when considering whether or not the holding company met the requirements of the definition in paragraph 22(1) of Schedule A1 to the Taxation of Chargeable Gains Act 1992, i.e. intra-group interest would not, of itself, disqualify the group from being a 'trading group'. The Revenue has also confirmed that the same principle should also apply to a holding company letting property to a trading company which is a wholly owned subsidiary and where the holding company makes available intellectual property rights in return for royalties to a trading company which is a wholly owned subsidiary.
Of course, lending monies, letting property or making available intellectual property rights to a third party outside the group by the holding company (or indeed the subsidiary company) could affect the availability of business asset taper relief.
Charles Pascoe,
BDO Stoy Hayward,
London.

Preserving losses on incorporation
Under Extra-statutory Concession D32, when a business is incorporated the Revenue may disregard liabilities taken over by the company for the purposes of the rollover provision in section 162, Taxation of Chargeable Gains Act 1992. The Revenue's Policy Division has, however, stated that the concession does not apply for the purposes of the loss carry forward provision of section 386, Taxes Act 1988. When looking at section 386, it is necessary to treat the assumption of liabilities by the company as part of the consideration for the assets: if they represent more than 20 per cent of the value of the business, section 386 relief will not be due.
David Whiscombe,
Berg Kaprow Lewis,
London N3.

 

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