New queries, issue 4450

Incidental costs

Are an IFA’s charges an allowable cost for capital gains tax purposes?

Traditionally, if a client asked an independent financial adviser (IFA) to help her invest a sum of money in an open-ended investment company (OEIC), the IFA’s fees would be paid by the OEIC.

So if she invested £500,000 in a portfolio of funds, she would receive a statement of costs which added up to £500,000. That would clearly be her total capital gains tax base cost and the statement would split it between the individual fund holdings.

Following the retail distribution review, she may now pay her IFA a separate fee, or receive a statement of costs adding up to £490,000 with a separately identified “initial charge” of £10,000, shared between the IFA and the platform through which her portfolio is held.

Does this change the capital gains tax position and is it permissible to apportion the fees and charges across the portfolio? Also, is there any difference between the IFA’s fee and the platform’s charge?

HMRC’s Capital Gains Manual at CG15280 says that the adviser’s fees are deductible “only to the extent that they are directly referable to the cost of acquiring or disposing of each particular investment. To the extent that the fees relate to advice about the general state of markets or the prospects of particular forms of investment or the management of a portfolio, they are not allowable.”

But it seems to me that the cost of acquiring the portfolio includes this incidental charge, and the cost of each element of the portfolio includes the appropriate proportion of it.

Query 18,388 – Male

Gift of shares

Could a gift of shares to fellow director/shareholders be disguised remuneration?

Director A owns about 16% of the shares of a trading company which she subscribed for at par for about £24,000. Because of the declining fortunes of the company, A wants to resign as a director and to gift her shares to the other two shareholders/directors and hold over any gain under TCGA 1992, s 165.

The shares are likely to be worth more than par because another majority shareholder is about to receive above par in a share buyback.

We are concerned that a gift of the shares to the other shareholders/directors, could be caught by the disguised remuneration rules introduced by FA 2011, Sch 2 and wondered whether this risk might be lessened if the company were to buy back A’s shares for £1.

If A’s shares were bought back at market value and A did not meet the conditions of CTA 2010, s 1033, then CTA 2010, s 1000 would treat the excess of the consideration over par as a distribution.

But if the consideration is less than market value, only £1, what is there to prevent market value being imposed for capital gains tax purposes by virtue of TCGA 1992, s 17(1)(a) or s 17(1)(b) (and without the possibility of s 165 holdover)?

Query 18,389 – Mephisto

Property travel

Tax deductions for vehicle and travel costs associated with residential lettings.

We act for an individual and his wife who own several investment properties in equal shares. These are residential, let out to various tenants and are scattered across a fairly wide area.

Our client has purchased a Land Rover which he has stocked up with tools and materials. He drives from his home to the various properties to carry out minor repairs as well as deal with letting issues that are best sorted out directly with the tenant, face-to-face so to speak.

Do readers think the cost of this vehicle plus its running costs will amount to a valid deduction against the rental income? We have in mind the Samadian case which could have some direct relevance.

Another client lives in a provincial city, but has letting property in central London. On the same basis (and really we think that this is the same question) would his costs of travelling to London to sort out various problems regarding the properties be allowable?

He would admit that he travels to London in any event for social and domestic purposes, combining the two functions when he does, calling in to resolve his tenants’ problems.

Query 18,390 – Plympton

VAT and locum GPs

The VAT liabilities of locum GPs who supply services through companies.

I have inherited two locum medical general practitioners who trade through personal limited companies.

Doctor A sources most of his work through various agencies, although his company invoices one NHS hospital directly, albeit fairly infrequently. His business turnover is more than the VAT threshold, but he is not VAT registered.

Doctor B sources all his work through an agency. His business turnover is around the VAT threshold and he is VAT registered. He charges VAT to the agency and makes a flat rate VAT profit. There does not seem to be a problem with this arrangement.

Doctor A would also like to benefit from the flat rate scheme and has asked for advice.

My questions are as follows.

• Does the personal service company supply services or staff?
• Would the NHS hospital take a dim view of being charged VAT by the personal service company of Doctor A? I wonder whether the VAT charge would be seen to be an irrecoverable cost for the hospital and might therefore prejudice their view on using Doctor A.
• Does the tribunal’s decision in Rapid Sequence Ltd alter the positions at all?

The IR35 rules do not, on the facts, seem to apply to either doctor, although any comments are welcomed.

Query 18,391 – M

Issue: 4450 / Categories: Forum & Feedback