.png)
.png)
Is business property relief available?
My clients, three connected individuals, are in partnership farming land, the freehold of which is owned by the partnership. Most of the income relates to grants and grazing. It is likely that some of the property will fetch a large sum when it is sold for development.
The partnership agreement provides that on leaving the partnership, the outgoing partner shall be paid the amount of his capital account based on the balance sheet drawn up at the next accounting date. He is not entitled to any share or interest in the property of the partnership or net profits arising after his leaving date. One of the partners has died; his CGT base cost for the land is less than the balance sheet value (and less than market value).
HMRC’s Capital Gains Manual states (CG30360) that interests in partnership assets are not included for the purposes of TCGA 1992, s 62(1) as assets of which a deceased person was competent to dispose and so there is no legislation to prevent such assets being deemed to be disposed of on death. HMRC says that that such interests should be dealt with in accordance with the part of the manual concerning partnerships (CG27000), resulting in SP D12 applying.
Does a chargeable capital gain arise to the deceased partner on his death? If so, would it be based on market value? Would that still be the case if the partners were not connected, and the property is not revalued in the accounts?
Would the value for inheritance tax be based on market value or the balance sheet value that determines the capital account payable to the estate? Will business property relief be available?
If what transpires is double taxation, is there any other mechanism to prevent this?Query 20,091 – Backwoodsman.
Dividend income errors in high net worth client’s tax return.
One of my high net worth clients has just been through an HMRC investigation. He received a clear bill of health on everything except dividend income. He has a large investment portfolio which is not managed by a broker so each year one of my staff has to work though all of the dividend paperwork to produce a schedule which is used in the tax return.
HMRC has flagged two errors in the schedule: 1) one dividend out of a total of 30 was missed out – the client appears to have mislaid the relevant papers; 2) there is a transposition error on our spreadsheet where a dividend of £8,300 was keyed in as £3,800. The combined tax effect of these two errors amounts to about £6,000 of additional tax (a small amount in proportion to the client’s total tax liability for the year of over £150,000).
Our client is diligent but didn’t spot this error. HMRC says that a penalty is due because our client did not take reasonable care, particularly as the return was prepared by an accountant. Our client feels strongly that this was simply a mistake, and he should not be penalised.
Is HMRC likely to accept the argument that this was an error which doesn’t justify a penalty?Query 20,092 – Adviser.
Can a group registration be formed with no VATable sales?
One of my clients owns two limited companies that are wholly exempt from VAT in the financial services sector. The first company incurs premises and other overhead costs that my client would like to charge to the second business which uses many of the services in question.
However, the annual charge – if made on a commercial basis – would exceed the VAT registration threshold and presumably lead to irrecoverable input tax for the second company.
However, a colleague has suggested that a group VAT registration would be the solution so that the management charges would be ignored. But how can we get a VAT number from HMRC when neither company has any taxable sales?
Alternatively, can we just describe the recharged invoice from company one as ‘rent’ which is exempt from VAT anyway and would therefore be ignored for the purposes of the registration threshold?Query 20,093 – Recharge Rita.
Apportioning time used at the dining room table.
I am VAT registered as a freelance IT consultant and work from home. I purchased an expensive new dining room table and I am wondering about the VAT and tax treatment.
My initial thinking was that as I use the table for two things – eating and working – it would be reasonable to claim 50% of the VAT as input tax ie, on the basis that there are two uses and one is for business. But then I thought that perhaps a fairer split might be to claim 85% based on the time I spend working at the table compared to eating, an hours-based split. Then a friend said that because the dining room table is not an item of office furniture and I have not ringfenced any specific room for my business activity, I can’t claim any VAT on the purchase.
I accept that I cannot claim relief for direct tax purposes as the table fails the ‘wholly and exclusively’ test for business use. But VAT is apparently different.
What do readers think?Query 20,094 – Table Manners.
Queries and replies
Send queries and replies to taxation@lexisnexis.co.uk. Replies should be submitted by Monday, 11 days after print publication. We pay £40 for each reply published in the magazine and select those which reflect the widest range of answers. As a result, the views expressed are not necessarily our own and so they should be read with a critical spirit. Contributions may be identified by name or a pseudonym. For full T&Cs visit: tinyurl.com/RFguidelines.
