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Trust gains
Disposal of assets on life tenant’s death.
I act for a trust whose life tenant died in May 2020. I appreciate that gains up to the life tenant’s death are chargeable on the trustees who benefited from a vulnerable beneficiary election.
On the life tenant’s death, the assets are rebased to probate value, and the remaindermen become absolutely entitled against the trustees. I have always assumed this meant that future disposals would be chargeable on those remaindermen, because the trustees would then hold the assets on bare trust.
However, I am no longer confident of this analysis in respect of the assets which will have to be realised to pay the inheritance tax chargeable on the death. Those assets are surely not sold for or on behalf of the beneficiaries, so I assume that any gains (calculated with probate value as the starting point) must be assessable on the trustees.
Is that correct? And, if so, what annual capital gains exemption applies, given that there was a vulnerable beneficiary election in place, but that person is now deceased?
Taxation readers’ views would be very welcome.
Query 19,687 – Baffled.
Accounting for stock
Which year should costs of stock be taken into account?
A friend and I have both been sole traders for many years and are ready to start a business partnership together.
I have always prepared my own accounts and tax returns in the past. When I was trading by myself, I calculated how much of my stock related to that year’s sales and then adjusted the cost so that I did not claim this as an expense until the stock was sold. Can I use the same process for the partnership?
Alternatively, can I work on a pure cash basis and simply claim the whole of the cost of stock in the year of purchase against cash sales received in the same year? Potentially, I suppose this would depress the first year’s taxable profits, but increase the taxable amount in future years.
That said, we may continue to buy stock in similar quantities in future years, holding some in reserve so to speak, so the increase in taxable profits might only happen some years in the future as and when we run down our stocks in anticipation of the business ceasing.
I look forward to receiving advice from readers.
Query 19,688 – Trader.
SEISS claim
Tax on SEISS claim for non‑residents.
I have a client who has made a claim under the self-employed income support scheme (SEISS). Previously, she has worked as a physiotherapist with a theatre production company in the UK and has been self-employed for a number of years.
However, due to Covid-19 the tour was cancelled and she went to Australia to stay with family and friends. She has made an SEISS claim under the first round because it was her intention to return to the UK as soon as feasible.
Unfortunately, she has had a number of flights cancelled and is now seeking part-time employment in Australia until she is able to return. Therefore, it may not be until the new tax year (in other words, 2021-22) that she will become UK resident again.
If it transpires that she is non-resident for 2020-21 do readers think that HMRC would look to claw back the SEISS money? I see there is nothing to preclude a non-resident from claiming, but I am just trying to think about the logistics because the grant monies have to be taxed in the UK.
I hope Taxation readers can provide some assistance.
Query 19,689 – Garrick.
VAT exemption
Partial exemption VAT dilemma.
One of my clients has a partial exemption dilemma with VAT. He trades as a VAT-registered electrical contractor but has recently bought a three-bedroom house which is in a state of disrepair, with the plan to renovate it and sell. The eventual sale of the property will be exempt from VAT, but it will not be sold until summer 2023.
I expect that my client will be able to claim input tax on the building materials bought for the house because of the partial exemption de minimis limits (he will do all of the work himself). But how should we apportion input tax on business overheads when we check the de minimis calculations, for example, VAT on accountancy fees and telephone costs?
The business will have no exempt income in his partial exemption tax years ending March 2021, 2022 and 2023, so this will give 100% input tax recovery with the standard method based on sales – is this fair?
Should we carry out an alternative method to apportion input tax on overheads, perhaps based on the number of hours my client trades as an electrician (taxable) compared with the number of hours he spends working on the house (exempt)?
Readers’ thoughts on solving this conundrum would be appreciated.
Query 19,690 – Steve.
