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Here we go round...
I act for a registered children’s nursery which is owned by a divorced lady aged 68.
The business consists of the premises, owned by her free of mortgage charge, and the underlying children’s nursery business. The main management is carried out by her married daughter who works full time in the business and is employed under PAYE.
My client wants to dispose of a part of the business to her daughter, in effect by making her a partner in it. I have explained to her that this would actually involve a disposal for capital gains purposes other than by way of a bargain at arm’s length to a related party.
The market value at the present time of the entire business and building is approximately £500,000. The acquisition cost by the present owner was approximately £170,000 some 15 years ago.
I have explained that she could elect under TCGA 1992, s 165 for the chargeable gain arising on the transfer of a half-share to her adult daughter to be held over.
The transfer of value is a potentially exempt transfer and as long as the daughter continues to run and operate the business as a partner with her mother, there appears to be full availability of business property relief on the half-share gifted to the daughter and indeed, on the mother’s retained half-share, as long as she remains a partner in the business.
Under the terms of the mother’s will it is now proposed to bequeath the mother’s remaining half-share in what will then be the partnership business to the daughter on her death.
I am concerned here as to whether this particular course of action may fall foul of either the pre-owned assets charge or whether the accrual clause in the mother’s will, where her partnership share will accrue to her surviving daughter upon the death for no consideration, could cause any loss of BPR on the mother’s retained share.
Readers’ views on the matter generally would be very much appreciated.
Query 17,428 – Kiddies’ Korner
Come on, Andy!
My client owns a 2006/10 Wimbledon centre court debenture that was purchased in 2004 for £23,150 and which entitles the holder to 13 tickets each year.
My understanding is that the matches are held over a 13-day period so this translates to one game per day over the tournament. Last year, he sold about half of his tickets.
The individual value of each ticket could be calculated as £356 (i.e. £23,150/
(13 x 5 years)) or should I deduct the repayable £2,000 loan element of the debenture? But are tickets for the finals and semi-finals valued at more than those for early matches or does it depend on who is playing and the excitement of the games?
My client also received some compensation payments when games were abandoned or cancelled due to bad weather. How are these payments treated?
I am uncertain whether the amounts received by my client should be subject to capital gains tax or income tax and how any profit should be calculated. Alternatively, is there a tax liability at all?
I note that tickets are currently being sold on e-Bay. Unless one is actively buying and selling tickets, is the sale by my client the equivalent of him finding some junk in the attic which is now surplus to his requirements so he sells it on the internet?
Advice would be welcome.
Query 17,429 – Cliff
Misconstrued
My client is a contractor and pays some subcontractors net of tax as they are not registered to receive their payments gross.
Last year, he sent some subcontractors to work on a job several hundred miles away. The contractor paid for a few hotel rooms for the subcontractors to stay in for the duration of the job.
He deducted tax from their pay, but HMRC say that he should also have paid tax under the construction industry scheme (CIS) in respect of the amount paid for the hotel rooms.
However, they also say that this tax could not be reclaimed by the subcontractor. Is this right? It seems to me that HMRC are effectively ending up with tax in respect of a payment that would be tax deductible.
If HMRC are correct, where does this end?
For example, if the contractor had allowed his subcontractors to drive to the distant site using the contractor’s vehicle and he had filled the tank with petrol and allowed them to, say, pay for any other petrol using his business account, should the value of that have been taken into account under CIS?
And what about the value of the use of the van itself? Similarly, what if the contractor provided tools?
The more I think about it the less clear I am as to how the principle (if there is a principle at work here) should be applied and I would appreciate readers’ advice.
Query 17,430 – Palladio
Taking stock
My client was director and shareholder of a limited company in the building industry. The recession has bitten and the company has been forced to cease trading. In an attempt to keep the business going, my client had already remortgaged his house and introduced about £50,000 into the company.
Unfortunately, all this did was to postpone the inevitable and he was unable to turn things round.
The company still exists and our client is currently taking stock of his new-found situation and is wondering whether he can continue the business, but on a smaller scale – without the subcontractors and the debts.
Can he still claim tax relief for the interest on that part of his mortgage for the loan to the company? He has some investment and property income that he could set this interest against. Does a period of non-trading or change in the scale of activities affect the ability to claim relief?
Readers’ thoughts are welcomed.
Query 17,431 - Loan Out
