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Discretionary trusts
Trust set up for transferring property to children.
My clients are a married couple who wish to transfer properties into separate trusts for each of their two children. The husband and wife will be joint trustees and the value of each trust will be in excess of £1m.
The couple must have total control over each trust and be in a position to claim holdover relief regarding capital gains tax liability on the transfers. All properties in question are owned equally by the parents.
I would be obliged if Taxation readers would recommend the type of trust that will meet the above requirements.
I look forward to replies.
Query 19,319– Trustworthy.
Semi-retirement
Tax resident in UK or Spain, or both?
Fred is UK resident and domiciled. He has recently taken early retirement from his London-based job and plans to work as a consultant through a UK company of which he will be the sole shareholder and director. He is hoping to work for about six months each year, although this may vary from year to year.
Fred lives in a house he owns in London and has recently bought a villa in Spain where he expects to live while not working. His clients will all be in the UK and he will work mainly at their offices although he may sometimes work from home either in the UK or Spain.
His family all live in the UK. He does not expect to have any Spanish income except perhaps a small amount of interest on a local bank account.
Fred is likely to be tax resident in the UK under the first automatic UK test if he is in the UK for at least 183 days in a UK tax year. However, he could also be resident in Spain if he spends more than 183 days there during a calendar year.
Given the different tax years in the two countries, it is possible he could be resident in both countries at times.
The ‘tiebreaker’ clause of the double taxation agreement between the UK and Spain looks first to the location of permanent homes (irrelevant because Fred has a permanent home in both countries) and then the centre of vital interests which seems likely to be the UK in Fred’s case.
My questions are as follows.
- Does the tiebreaker clause need to be considered for each UK and/or Spanish tax year independently?
- Is it possible to get advance clearance or can Fred simply not file a Spanish tax return on the assumption that it applies?
- Is there a risk that Fred’s company will be considered resident in Spain if he becomes Spanish tax resident for income tax purposes or if he does some work for UK clients while he is living in Spain?
- If so, can this risk be mitigated if he resigns as a director and appoints a UK-based relative in his place?
I would be interested to know whether any readers might have had practical experience of this clause and whether they can provide any assistance.
Query 19,320– Silver Fox.
Awkward customer
Adviser’s responsibility towards an indebted client.
I have a client whose company is facing financial difficulties. When I prepared interim accounts, I saw that his current account was overdrawn, and there was insufficient profit to vote a dividend to clear the deficit.
I suggested that he should refrain from paying himself any more money until the company has balanced the books and starts making a profit. He has taken no notice and clearly he has to draw enough money from the company to sustain himself.
The situation is that he now owes even more money to the company at the year end, and it is not possible to clear the account either with a vote of a dividend or salary.
He has carried on drawing since the year end. Clearly, it is necessary to declare a taxable benefit and to pay tax under CTA 2010, s 455.
My question for readers is whether I have any responsibility to ensure that everything is in order other than simply that all the taxes owed are paid.
His current position is that he has enough equity in his house for me to be satisfied that the outstanding debt is recoverable.
Query 19,321– Overdrawn.
Boxing clever?
Can input tax be claimed on boxer’s food and drink?
I act for a limited company where the sole director and shareholder is a professional boxer.
The company is buying a guard dog and my client has asked whether it can claim input tax on the costs of buying the animal, as well as on its food and vet costs. However, I am not sure if dog food is zero rated.
Also, he has asked if he can claim input tax on some of the food and drink costs he incurs in the build up to a fight. His calorie intake can be as much as 10,000 a day during these periods, which seems a lot compared to 3,000 consumed by an average man.
I think there is some logic to his request – most of the food he consumes is standard rated because he eats out a lot at steak restaurants.
Readers’ thoughts would be very much appreciated.
Query 19,322– Bugner Boy.
