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IRS calling for US tax returns.
A potential new client has approached me with a problem they are having with the US Internal Revenue Service. The client is in their early 70s and recently widowed. They were born in the US to British parents, but came to the UK when they were two years old and are a British citizen. They have lived in the UK since then, married a UK citizen and have no connection with the US. The client’s income is all subject to the basic rate of income tax and comprises their own work and state pensions, late spouse’s pension and rental income from a house that was jointly owned with the spouse but is now in the client’s name only.
Somehow the client came to the attention of the US IRS and is now being chased for US tax returns. The best thing to do would be to relinquish their US citizenship. They are trying to do this but have been told it could take some months at least, because there is a backlog of other people trying to do the same.
This is not my area of expertise but I would like to help this person of mature years who is not in a position to pay more tax than they do already on their UK income. Do they need to complete the US returns even though they are applying to give up their US citizenship? It is not clear how many years the IRS is interested in.
Any help or pointers will be gratefully received.
Query 20,155 – Boston Tea Party.
Correct tax treatment for self-employed person based abroad.
A UK resident person gives professional advice. He wants to go and live abroad, but continue his profession. He asked me whether he could give professional advice, from a location abroad, to people in the UK by Zoom meetings and phone.
Originally I thought that it was all right, and his work would not be subject to UK tax, because he would only be located abroad, and not visit the UK at all.
The fact that he may spend all day on Zoom meetings, and on the phone, to people in the UK, would not count.
But then I saw the Employment Income Manual at EIM40203 and 40204 which implied that, in HMRC’s opinion, such Zoom meetings and phone meetings are ‘not merely incidental duties’.
Admittedly those pages are talking about an employee, and I am dealing with a self-employed person, but it seems to me that this point is not significant.
Please could Taxation readers enlighten me about the correct tax treatment?
Query 20,156 – Wanderlust.
Is set of pistols ‘machinery’ for CGT exemption?
My client is about to sell a pair of antique pistols – they date from the early 19th century and it is estimated that the sale price will be in the region of £50,000.
They have been in his family for generations and he acquired them on the death of his father 40 years ago, when their value would have been a fraction of their current price, so he is facing a significant capital gains tax charge. They are definitely a set (they are stored in a single case).
Movable plant and machinery is deemed to have a life of less than 50 years and is therefore exempt from CGT under TCGA 1992, s 45.
Do readers think that a pistol could be considered to be an item of machinery and therefore qualify for the exemption?
If the answer is ‘yes’, do readers also think that a white space disclosure should be made on the client’s tax return to show that the pistols are being treated as exempt?
Query 20,157 – Sharpshooter.
Claiming input tax on costs of selling buy-to-let properties.
One of my clients trades as a hairdressing salon and also owns five buy-to-let flats, so he is partially exempt for VAT purposes.
He has recently sold two of the flats to fund the freehold purchase of a new salon in a prestigious city centre location. He asked if he could claim input tax on the estate agent and legal fees linked to the property sales and I said ‘no’ because the sales were exempt from VAT. The VAT on the selling fees for the flats was incurred during the VAT quarter to March 2023. A few months earlier a significant amount of maintenance and repair costs were incurred in relation to the flats so the total amount of exempt input tax exceeds £7,500 for the partial exemption year.
However, a colleague says that an input tax claim is fine because the purpose of the expenditure is to fund the purchase of the hairdressing salon, which is a taxable activity; he has quoted the 2021 case of Hotel La Tour Ltd (TC8335) to support his view. He said that the costs are directly related to the new salon because if there were no professional fees incurred on the flat sales, my client would have extra money to spend on the salon. His comments make sense but are they correct?
Query 20,158 – Vidal.
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