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Will extension be deemed a disposal for tax purposes?
A client owns the freehold of a block of flats in London and granted a 99-year lease for one of the flats to a lessee some years ago. A premium was received which was subject to tax under the usual part disposal principles. The lessee now wishes to extend the lease to 999 years and a further premium of £10,000 will be paid. I understand that the premium is relatively small as there is little difference in value between a 99-year lease and a 999-year lease.
It seems that the transaction will be deemed for tax purposes as a disposal of the old lease by the lessee and the grant of a new lease by the freeholder. Further, this will be the case whether a new lease is granted or whether the term of the existing lease is simply amended.
It is likely that the lessee may take advantage of ESC D39 where the surrender of the lease will not be treated as a disposal by the lessee provided certain conditions are met. However there seems to be no similar concession to the lessor who is deemed for CGT purposes to have granted a new lease, the consideration being not only the sum received from the lessee of £10,000, but also the value of the old lease which has been surrendered. As the value of the old lease has been estimated at £50,000, the total deemed consideration is £600,000, which will entail the lessor paying tax on proceeds it will not receive.
Do readers agree? If so, it does seem that there is a concession for one party and not for the other.
Query 20,203 – Dry tax.
CGT issues on transfer of land.
A client sole trader farmer (the father in this case) recently permitted his son and daughter-in-law to build a modest dwelling on his farmlands without first having transferred the legal title to the subject dwelling site to his son and daughter-in-law. Since construction of the subject dwelling, it has always been used solely as a private residence of the son and his wife. Because of rural planning regulations in Northern Ireland, the site (previously greenfield) is beside a farmyard cluster of buildings and the entrance is via a shared lane.
In consequence, the subject site would have had very limited open market value, meaning that it would be difficult to arrange a relating mortgage to finance the dwelling concerned. So, the son and his wife, had to arrange unsecured loans and use family resources to finance the construction costs. All of the parties involved are UK resident.
At present, the legal title to the dwelling remains with the father, who now wishes to transfer the subject legal title to his son and daughter-in-law. This will be done for nil consideration.
I am concerned about the CGT issues. As this is a disposal between connected persons the market value rule will apply. But does that value include the value of the house as well as the land? Is there any argument for saying there was a part disposal when the farmer allowed construction of the house?
What do Taxation readers think?
Query 20,204 – Sputnik.
Who will have taxing rights?
Our client is a US citizen but is deemed domiciled in the UK; her main source of income is from a US trust fund of which she is the settlor. All income has been declared on the UK return.
She is looking to move to Southern Ireland with her Norther Ireland-born husband and possibly return to the US in about ten years.
Only one child (over 18) will remain in NI as the rest are studying/living in US.
She will have a house in NI and she is aware of the number ties for the SRT.
As a US citizen who may be both UK resident and Irish resident, who will have the primary taxing rights?
Ireland’s taxation system is based on the remittance basis so we are assuming it is beneficial to increase the capital funds in the UK before moving to Ireland subject to the US trust fund having to calculate the necessary funds available which have been subject to UK tax and not yet paid to our client.
Also for Irish capital acquisition tax is there a limit which can be retained in an Irish bank given her children who were born in NI do not reside in Ireland?
Are there any other areas we should be reviewing before she moves next year?
Query 20,205 – Shamrock.
VAT on website sales of goods.
We have been appointed to act for a UK incorporated company that sells stationery to UK-based customers, through its own website and also via an online market place (OMP). The company is a wholly owned subsidiary of a Dutch company and has no UK trading premises, all decisions are made in the Netherlands; our office is the registered address with Companies House.
My questions relate to VAT; I have read HMRC’s guidance which is confusing.
My client holds some stock at a UK fulfilment centre of the OMP. As I understand it, my client must register for UK VAT but will only charge VAT when this stock is sold to a VAT-registered customer. Is this correct? Otherwise, the invoice from my client to the OMP will be zero rated and the OMP will charge VAT.
For shipments where the goods start in the Netherlands, it all depends on whether the shipment value is less than £135. If so, my client charges sales VAT for direct and OMP sales, otherwise they will pay import VAT and claim this as input tax, charging VAT on the onward sale to the final customer. Is this correct?
Query 20,206 – Jan.
Queries and replies
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