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Is relief available for inheritance tax?
I would be grateful for readers’ views on the availability of business property relief for IHT in the below instances.
- A trading limited company whose business includes income from consulting and income from commercial and residential let properties. While on turnover the income from trading activity is about 40-50%, the balance sheet shows 85% or more of net assets are predominantly from investment activity. Though the business has been long established any value of shares attributable to goodwill developed from trading is likely to be low.
- What is the position of a minority shareholder who is also a director in a trading company whose activity and assets are wholly derived from trading activity? The shareholder holds 30% of ordinary shares. Would they be eligible even though they do not have predominant control of the business?
Query 20,431– Investor.
Did client cease work after stopping commissioned work?
My client is a successful commercial artist. He has built a business from painting pictures on commission of pets, houses and children. But he is now of an age when he just wants to paint subjects of his own choice in a more personal style. So, he will discontinue the commission work. He will paint mainly for pleasure but will still exhibit work in local exhibitions and offer paintings for sale, though the income from this will be much less than from his commissioned work.
Over the years, he has built up a fair amount of material, paint, canvasses, etc and these now have significant value. On a cessation of trade (and I think that this is a trade rather than a profession) of a cash business, I believe that an adjustment would have to be made to bring the value of these into account (a tax deduction would have been given for them at the time of purchase).
So, the question is whether or not my client has ceased to trade. Certainly his trade as a painter of works on commission will cease but his trade as an artist will continue. Given that the amounts involved here may be significant do readers think that it would be appropriate to treat the trade as continuing.
Query 20,432– Rembrandt.
Tax effect of transferring land as dividend in specie.
My client owns 100% of the shares in a successful trading company. The company owns a piece of land which my client is now looking to take into his personal ownership. The land has a value in the order of £500m.
A transfer of an asset to a director would normally create a benefit-in-kind (BIK) charge and an associated National Insurance contribution (NIC) cost. But what is the position if the land is transferred by way of dividend in specie? We know that the company has the reserves to enable this.
Would this take priority over the BIK charge and also not trigger an NIC liability? Is this up to the taxpayer company to ensure that the transfer is documented in the proper way or can HMRC decide which head of charge is to be used?
I think that the CGT charge in the company would be the same in either route but I am not sure of the corporate tax position.
On a dividend route there would be no deduction, but on a BIK route would the company get a deduction for the cost of the land as it formed part of a remuneration package? Query 20,433– Dr Jekyll.
When should school register for VAT for various activities?
We have a charity client which runs a private school. Presumably from 1 January 2025 it will need to charge VAT on the school fees. It also holds some weddings on site and various other things. This is the client’s email:
‘As you know the recent Budget has confirmed that VAT will have to be applied to private school fees from 1 January 25 onwards. We now have to register with HMRC and have six weeks to get this done. What date should we register from? Can you advise whether we will have to charge VAT on:
- The rental of a flat to a family who have children in the school. They pay £1,200 in rent per month. The rental period was initially six months from September, but I suspect it will roll onto at least Easter if not the end of the academic year. I have seen somewhere that residential properties are not liable for VAT. Is that correct?
- The local football club uses our car park for home matches. They steward it and do a count which we then invoice retrospectively. Does this need to now include VAT? If so, from when? From the Budget or when we receive HMRC’s registration notification?
- We erect teepees for wedding receptions in the late spring and summer. Do we now have to charge VAT on their use? The turnover for the current financial year may be £30,000. Some of the weddings for the 2025 season have already been invoiced and paid, some have paid deposits with balances outstanding; can you clarify when the VAT would have to be applied from?
- Similarly, what about courses run by our staff for first aid (which they are qualified to run) for local small organisations/churches/charities, does VAT have to be applied?’
Query 20,434– Brandy.
Queries and replies
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