New queries, issue 4679

Estate planning

Extent of eligibility of residential nil rate bands.

My clients bought their only main residence in 1965. The husband lived there until December 2012, when he moved into a care home. The house was sold in August 2015, when his wife also moved into a care home.

The wife died in July 2016, leaving everything to her husband. Their nil rate bands were fully utilised by cash gifts after the sale of the house.

Should the husband die in 2018-19, is it correct that his estate can use the residential nil rate band of £125,000 along with £125,000 from his wife – increasing to £150,000 each after 5 April 2019)? The estate will pass to direct descendants whose estates are under £1m each.

I look forward to hearing from Taxation readers.

Query 19,303– AM.

Goat yoga

The tax implications of yoga classes with animals.

My client is a yoga teacher and, to increase the appeal of her classes and her business turnover and profits, she has started ‘goat yoga’ classes (it’s a thing, no ‘kidding’). Apparently, this is when participants perform yoga poses with goats nearby or even standing on them – the goat standing on the person, not vice versa.

A friend of my client has a small farm and is willing to set aside a paddock where the yoga lessons can be held, and the goats will be allowed to roam during the sessions.

Although there is nothing yet in writing, my client has bought ten goats and I should be grateful for advice on how this purchase should be treated for tax purposes. I do not deal with farmers and wonder whether the herd basis would apply.

The original plan was that my client would meet the costs, but she and the farmer are now wondering whether this should be dealt with as a separate partnership. The farmer would benefit from goat milk (and perhaps meat), while my client uses the animals for yoga. It occurs to me that this might help to keep my client’s turnover below the VAT registration limit and the farmer might then have business income rather than rent from the paddock.

This scenario is new to me and I should be grateful for any advice from Taxation readers who might like to chew this over.

Query 19,304– Gertie.

Property transfer

Capital tax implications of property transfer to ex-wife.

For many years, my client and her husband lived in an old bungalow that they owned jointly. They needed more space, so demolished the bungalow and moved into the garage which they converted to accommodate them while the new house was being built on the site of the previous home. After more than ten years, the new house is almost ready, but recently the couple have separated and divorced.

As part of the divorce settlement, the ex-husband took his name off the property deeds and in turn received £200,000. He now lives with his new wife in her home which he does not own.

My concern is that HMRC may take the view that, because he did not live in the new house, he may not qualify for only or main residence relief on his half share or for relief under TCGA 1992, s 225B. However, the converted garage is attached to the new home and he and his ex-wife lived in it as their main residence until the marriage broke up. Would that be enough to mean that the disposal of his interest in the property will qualify for relief? I presume that there could also be inheritance tax implications.

Have Taxation readers any thoughts on this?

Query 19,305– Lennie.

Input tax dilemma

Resolving an overclaim of input tax for previous years.

I act for a not-for-profit entity that owns about 700 parcels of land and some derelict buildings. The land and buildings were given to my client by the local council about seven years ago.

The aim is that the sites (which in some cases are very small) will be sold off or put to good use by being given away over the next ten years. An option to tax is in place on about 100 of them, with rent charged on about 60 (plus VAT) because a tenant is in place.

My client receives an annual invoice from the council (plus VAT) to cover all maintenance and landscaping work carried out on the 700 sites – this could relate to services such as cutting the grass in the summer or dealing with routine maintenance work.

My client has claimed all of this VAT as input tax for the past seven years, but this would appear incorrect. The invoice does not itemise a cost for each parcel of land – it is based on a total time charge for the year and the related cost of goods. Is a possible solution to opt to tax all 700 sites so that input tax can then be claimed? And what should we do about input tax claims made in the past seven years?

Readers’ thoughts are welcomed.

Query 19,306– The Grass Cutter.

Issue: 4679 / Categories: Forum & Feedback