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Minimising tax on sale of valuable leases.
My client has posed me the following question. A few years ago, her brother wanted to turn his freehold house into two leasehold flats. He gave her the freehold so she could grant him two leases.
Last October he died, leaving the two leases with 30 years to run. She is the executor of his estate, and she has been advised to extend the leases before selling them (involving surrenders of the old and grants of new 999-year terms). She proposes to do this for no premium, as she does not think of the freehold as her own asset.
She cannot grant new leases to herself, so her solicitor has advised her to set up a management company and use it to extend the leases. The problem is that the two short leases were valued for probate at £800,000 (on which IHT was paid); the flats on 999-year leases are estimated at £1.4m. I don’t think ESC D39 will apply, and there must be value going out of her estate as the freeholder. I see a huge capital gain for the estate and a non-PET for her – is there a good way of doing this?
Query 20,363 – Baffled.
Impact of joint railcard on husband’s travel expenses.
I have a client who is self-employed and whose work takes him across the country. He usually travels by train and claims his train fares as an allowable expense under normal principles. On some occasions, his wife will join him to keep him company on the train and for an opportunity for her to wander around different cities while her husband is working.
I have no worries about the purpose of the husband’s journey – that is undoubtedly for work; his wife’s company is entirely incidental to the business journey.
My question concerns the fact that they have recently acquired a railcard which allows them a 33% discount if they travel together. For example, the husband can undertake a journey alone and be charged £100 which would be deductible from his trading profits. However, if the two travel together, the rail company will charge them £67 each.
What is the tax deduction? Is it £67 because that is the discounted cost of the husband’s ticket? Or is it £100 because that is how much had to be spent, with the additional £34 representing the cost of the wife joining him.
If the husband were to incorporate his business, would different considerations apply when it comes to the company claiming a trading deduction for the husband’s travel costs and its reimbursing him for tickets paid for personally?
Query 20,364 – Junction.
Can relief be obtained through self assessment?
I submitted query 20,071 (tinyurl.com/2wsxest4 ) about a self-employed client who took on a part-time office. Following the advice given, she has not opted to treat the income from the office as a part of her self-employment.
During the 2023-24 tax year, her self-employed profits were in the region of £250,000 and she received £25,000 taxed through PAYE since July 2023 (in roughly equal monthly payments). It has been some time since the cap on National Insurance contributions (NICs) was removed, but I still understand there to be provisions to ensure that higher earners do not overpay NICs.
My research suggests that relief can be obtained through the self assessment return but I am unsure how to claim it. Do the rules look at the total NICs paid (and is it both primary and secondary contributions) or do you need to consider things on a monthly basis?
Query 20,365 – Planner.
Can catering sales be linked to exempt sales of education?
One of my clients has encountered a VAT problem. The company’s income is fully taxable but it acquired all of the shares in a separate company two years ago, which only has exempt income from supplies of vocational training; the training company has never registered for VAT.
The client therefore formed a VAT group, consisting of the two companies, which is partially exempt. This meant that there no VAT leakage on management charges made from the holding company to the subsidiary.
However, it has since emerged that the subsidiary company also has income of about £1,000 a week from a cafe facility on its premises – it supplies hot and cold meals and drink to both staff, trainers and the apprentices being trained. When the subsidiary company traded on a stand-alone basis, this extra income was not a problem because it was less than the annual registration threshold of £90,000 but it is now an issue because the company is a member of the VAT group.
Is there an argument that the catering sales are also exempt, as an incidental source of income to the training fees?
If not, can we form a separate company for the café sales, which will trade below the registration threshold and not lose 1/6 of its sales as output tax. The catering activity has very little input tax because its purchases of food and drink are mainly zero-rated.
Query 20,366 – Caterer.
Queries and replies
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