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Family holiday home
Gifts with reservation of benefit dilemma.
I refer to the ‘Benefit or bother’ article in Taxation, 1 October, relating to gifts with reservation of benefit (GWROB).
A friend recently mentioned that he had given money to his two sons in 2001 for a 25-year remaining lease on a West Country cottage for £40,000. A few years later a 999-year lease was negotiated and paid for, again by way of gift to the two sons. As students, they don’t own any other property, so they assumed they could claim the cottage as their only or main residence, although it was used also by the family as a holiday cottage. It has never been let.
Further improvements have since been made and paid for by the parents. In 2014, the two sons made a deed of gift of a one-third interest to their third brother. The property was valued at that time at £100,000. My friend contends that it is unlikely that a capital gain would have arisen on the gift because of the costs he incurred on improvements. Additional substantial expenditure on the cottage has since been funded by the parents.
I am concerned that my friend may have a GWROB problem. The three sons pay for the running costs of what is now the family holiday home, but the principal users are the parents who do not pay any rent to their sons. As they did not actually own the property at any point, but funded the purchase and paid for the enhancements, can they rely on the seven-year rule for the original purchase and subsequent improvement costs paid by them, or should they consider renting the property from the sons going forward and hope to survive a further seven years? This income would need to be declared by the sons, but the running costs are high and the tax liability would not be great.
What do readers think?
Query 19,643– Bucket.
Tax translation
VAT treatment on furniture bought and sold in the EU.
I act for a UK company, but its director is resident in Spain. He is an interior designer and works in the UK and European Union countries.
He recently bought a sofa in France and paid French VAT. He resold the sofa to a French business client and charged UK VAT. He made a similar purchase in Denmark, again selling to a business customer in France. The amounts involved were about £15,000 plus VAT.
I advised the director that he should not have charged output VAT to the French company because the reverse charge would apply. He has since issued a credit note for this.
How does he reclaim the French and Danish VAT? Should the company be registered in France or Denmark?
His Spanish accountant suggests that he has to complete a form, but I have heard that there may be a six-month time limit for such claims.
Can readers clarify the position here?
Query 19,644– Velvet.
Pastures new
Farming proposal for an LLP joint venture.
My farming client Giles is elderly and widowed and owns valuable farmland that would appear to have greater ‘hope value’ following the statement by Boris Johnson of ‘build, build, build’ and the reform of the Town and Country Planning Act 1947.
Also, the proposals regarding permitted development rights make some of his buildings attractive as potential dwellings. Farming is ever more difficult because of the age and cost of the machinery.
Giles is being enticed into a limited liability partnership (LLP) joint venture by a few of his neighbouring farmers who offer machines, labour and a small area of land. His contribution is the use of his valuable land and know how.
The neighbours have been taking legal advice. I am worried about the risk of only 50% business property relief (BPR) for inheritance tax on any hope value following the Foster case.
There is also concern around the uncertainty over the subsidies as the Agricultural Bill is going before Parliament and the lack of clarity over the detail of the grants from the environmental land management schemes and the work that will be needed.
It seems that a more controlled contract farming arrangement could fulfil his needs. My advice is that Giles should take his time to fully review the tax and financial consequences, but he is impatient.
Taxation readers’ views on the logistics of the possible BPR loss and the timings would be appreciated.
Query 19,645– Highview.
Car resale
VAT considerations on sale of business cars.
I act for many builder clients and am worried that I have been giving incorrect advice on VAT for many years.
One of the replies to query 19,626 (Taxation, 1 October 2020, page 27) about the sale of a secondhand bus commented that a condition of the margin scheme for vehicle sales is that they must have ‘been bought for resale’.
I have always told my builder clients that if they buy a car to use in their business and have not been charged VAT on the purchase, there is no output tax to pay when they sell it, as long as they do not make a profit which, of course, they never do because of depreciation. Is this advice not correct?
To extend my question, if a client buys a new car and does not claim input tax, presumably there is no output tax to pay when it is sold? However, one of my clients had a bit of good luck when he bought a new business car from a liquidation sale for £10,000 plus VAT five years ago, did not claim input tax and is now selling it for £15,000. Is there VAT to pay on his £3,000 profit margin?
Readers’ help would be appreciated.
Query 19,646– Hamilton.
