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Is business asset disposal relief available?
A commercial property – owned personally by the main shareholders of close company A – was used for their business from 2004 and it was sold in February 2022. The company ceased trading in September 2021 but was wound up by members’ voluntary liquidation (MVL) in 2022-23.
I advised them to do a MVL first before the sale of the property but they sold the property without notice. As a result, I deliberately made the MVL in a different tax year to use the capital gains tax annual exemption for the shareholders.
I would like to confirm whether business asset disposal relief (BADR) can be used on the gains of property? If BADR is allowed, because full market price was charged, is it only available from 2004 to 5 April 2008? It is my opinion that BADR cannot be used as, by the time of the sale of the property, they didn’t make material disposal of business, ie winding up.
Readers’ views would be appreciated.
Query 20,055 – Disorder.
Should client declare disposal of property in tax return?
A client has told me that he has disposed of his main residence. It was a large property with extensive grounds which exceed half a hectare. From what I can see and from what the client tells me the whole of the grounds would meet the reasonable enjoyment test and there is no doubt that all of the other requirements for relief are met.
The client has asked me whether he needs to make any reference to the disposal on his tax return. Even though he thinks that he would win any argument with HMRC on the point, he would prefer not to risk an enquiry being opened and therefore would, if he can legally do so, prefer not to make any reference on his return.
Private residence relief is not subject to a claim. So if the disposal is outside the capital gains tax charge there is nothing to report. But HMRC’s guidance suggests that there is a reporting obligation when the permitted area is exceeded.
I am reluctant to go against HMRC’s guidance and I feel that my obligation is to insist that reference to the disposal is included on the return. But my client is likely to require chapter and verse before he accepts that recommendation. What is the strict legal position and what are my professional obligations?
Query 20,056 – Cautious.
Taxation of Lloyd’s underwriters.
A non-UK resident ‘name’ at Lloyd’s transferred his business to ‘Nomina LLP’ and then he interposed a UK limited liability company ‘Nomina Limited’ above the LLP, while retaining 100% of the economic interest in the underwriting.
The name died and left his single share in Nomina Limited to his two adult children who are also non-UK resident as well as being his only executors.
The children did not wish to continue the Lloyd’s business and, in 2021, the majority of the syndicate capacity was sold. The gains realised were subject to corporation tax by Nomina Limited in 2021 and, in December 2021, it paid a dividend to the estate.
Normally dividend income arising from funds at Lloyd’s is regarded as part of the trading profits and a non-UK resident member is subject to tax on it, but this dividend appears to be one step removed and I wondered if it would fall under ITA 2007, s 811 so that the executors/beneficiaries are not taxed on it.
Query 20,057 – Robert Usher-Somers.
VAT challenges with management charges.
One of my clients is a large trading group, consisting of a holding company A – and then B, C, D and E as subsidiaries.
A, B and C are in a VAT group but D and E are not.
In the year we are auditing, many costs were incurred by A, which has charged these down to all the subsidiaries as a management services fee. In that year no invoices were raised and the recharges all went through inter-company accounts.
I have advised my client that A should raise invoices with a current date, charging VAT to D and E, and accounting for output tax on the next group return. Is this correct?
As an added complication, E is in administration and likely to be liquidated so the company will not, in reality, see the reclaim of VAT because it will be used by the liquidator to pay other creditors.
The costs incurred by A include rent and wages and there are no joint contracts of employment in place.
The client mentioned claiming bad debt relief as company E would not be paying A however as the net costs have already been credited to the inter-company account this did not seem right.
What do readers think?
Query 20,058 – The Collector.
Queries and replies
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