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Do the math
Tax calculations on EMI share options.
My client was given share options by the limited company for which he had been working.
I understand that the shares would qualify for enterprise management incentives (EMI) treatment.
He received the following:
- 208,333 options at £1.20 (which is the maximum of £250,000).
- 41,667 further options at £1.20 making 250,000 shares.
After three years he exercised all the options. Shortly after that he sold 200,000 shares at £2.75 and later sold 25,000 shares at £2.40 and then 25,000 shares at £2.50.
The matching of sales to purchases may be important as entrepreneurs’ relief may be available.
Could Taxation readers assist with the tax calculations?
Query 19,479 – Sweeney Tod.
Mother and son
Holdover relief on farmhouse not occupied by owner.
My client came into ownership of a farm and farmhouse in May 1998 on the death of her father. From the time she became owner until December 2010 the farmhouse remained vacant.
From December 2010 her son moved into the farmhouse after spending his own money on the house to make it habitable. During the years that the house was vacant it was being used by the son and the client’s husband to change into their work clothes, to store drugs for animals, for interviews with vets and meal salesmen, and for other such similar activities.
The client’s son had been always been an employee on the farm but by the date he moved into the farmhouse he had become a partner in the farm alongside his mother.
My client would now like to give the farmhouse, yard and a shed with a strip of ground that holds a septic tank to her son while retaining ownership of the rest of the farmland.
My question is whether the mother would be able to claim holdover relief on the farmhouse from 1998 to the present? She does not live on the farm.
I look forward to hearing from Taxation readers.
Query 19,480 – Family Farmer.
Loan agreement
Gains on loan of shares from trust fund.
My client is the residuary legatee of a large estate. She decided to execute a deed of variation to create a trust for the benefit of herself and her husband in relation to that entitlement.
As a result, the assets of the estate were passed into the hands of the trustees who promptly entered into a loan agreement with my client and her husband to lend them the entire value of the trust fund. Part of the assets that were lent to them were various shareholdings with a probate value of about £400,000.
Not long after the transfer of these shares, one of the larger shareholdings had a rights issue that was not taken up, but the cash payment was quite large and resulted in a fairly substantial gain. This was using the probate value in the ‘A over A plus B’ cost apportionment).
I have three questions.
- Is the loan of the shares covered by the stock lending provisions?
- If it is, whose gain is it?
- What cost should be used?
I look forward to responses from readers.
Query 19,481– Windfall.
Hotel
Serious VAT errors dilemma for hotel.
I act for a limited company client and think I may have uncovered there is a serious VAT problem.
The company traded as a hotel for 12 years and spent £300,000 plus VAT on a dining room extension in 2015. Input tax was claimed on this expense but, in June 2018, the company ceased to trade as a hotel and instead rented out the building to a tenant for an annual rent of £50,000.
The tenant also made a payment of £200,000 for the goodwill of the business and fixtures and fittings. They have continued to trade as a hotel, and we treated the £200,000 payment as outside the scope of VAT under the transfer of a business as a going concern (TOGC) rules.
The problem is that the company client did not opt to tax the building, so the rent earned since June 2018 has been exempt from VAT, but it has continued to be VAT registered, claiming input tax on professional fees and other costs (a total of £9,000). The company has no other income or business activity.
What suggestions do readers have to deal with this problem and, most importantly, the following points.
- Is it correct that the adjustments with the capital goods scheme on the extension passed to the tenant buying the goodwill rather than my client acting as landlord?
- Would HMRC allow a retrospective option to tax election back to July 2018 in view of the exceptional circumstances?
- Or should we deregister the company from VAT instead?
I hope readers can provide some assistance with this problem.
Query 19,482 – Mr Hilton.
