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How to pass on company shares to employee friend.
My client owns a successful trading company worth, perhaps, £2m. She is divorced and has no children. One of her employees has been with her from six months after the business started, nearly 15 years ago, and has been instrumental in the success of the business.
John, the employee has been well remunerated for his work, with salary and bonuses and a small shareholding through enterprise management incentive option planning some years ago. Over this 15-year period, John and my client have become close friends, holidaying together, attending each other’s family celebrations and so on.
My client came to see me a few weeks ago to talk about her will, as she is now 60, and said that she has decided to leave the shares in the business to John. My concern is the disguised remuneration rules and the fact that leaving the shares to John in her will might be seen as earmarking for the purposes of that legislation (ITEPA 2003, s 554B).
If the shares are being left to John because he has been such a great employee, etc, then that might be within the policy intention of the disguised remuneration rules, although it would nevertheless put an intolerable burden on the company and on John if the company had to pay over the income tax and National Insurance contributions on £2m of value and John had to make good to avoid grossing up. On the other hand, I am certain that my client would not be considering passing the shares to John in her will if it wasn’t for the fact that they have become such good friends over the years.
It doesn’t feel to me that the policy role of the legislation is fulfilled by taxing legacies to friends who happen to be employees. I would be interested in readers’ views on this legislation and on any practical ways in which we can deal with this.
Query 19,999 – Pete Miller.
Is donor’s stay in gifted property a GWRB?
My client’s mother, who has always been cunning and manipulative, gave them her home in November 2019. The deeds were changed with the land registry and all the utilities, etc were put in my client’s name who has paid all the bills since receiving the gift. Just before she was meant to move out she fell and broke her hip and was thus not well enough to relocate on the day of the completion of the gift.
My client remained in their home and their mother stayed in the house until the end of January when her GP said she would be well enough to move. Just before she was due to move out, however, the washing machine spontaneously flooded at the (empty) flat that she was going to move into, so she had nowhere to go. She had to wait three months to get the engineers out as Covid-19 had hit. When her flat was ready to move into in May 2020, she allegedly caught Covid-19 and was unable to move for a month. While unwell, she developed a fear of leaving her house and is now an (undiagnosed) agoraphobic, claiming she is simply unable to move out.
My client thinks that her mother was never going to move out and has been using everything she can find as an excuse while they continue to pay all the insurance, council tax and utilities. She has now been diagnosed with cancer and been given two years to live.
Will the house remain in her estate as a gift with reservation of benefit, or will she be able to rely on events out of her control forcing her to stay in the home?
Query 20,000 – MaternalGrief.
Position of land-holding partnerships under the TRS.
I am confused as to the position of partnerships under the trust registration service (TRS), particularly as concerns land held by farming partnerships.
This issue was covered in Taxation by Julie Butler and Philip Whitcomb in ‘Don’t bury your head in the sand’, 30 June 2022, page 18, but I see a range of views being expressed in various publications and online forums, often from commentators whose views I respect.
Can anybody give me a definitive answer on whether a farming partnership – where the land is held by one or more partners on behalf of the partnership – needs to register?
Is registration only required when the partnership agreement or deed explicitly says that the property is held on trust for the partnership, or is it the source of funds which were ultimately used to acquire the asset which matter?
Surely there must be a simple answer to what is a straightforward question – or am I being naïve?
Readers’ comments would be very much appreciated.
Query 20,001 – Farmer Giles.
VAT relief on goods sent abroad by charity.
One of my clients is a medium-sized charity that is not registered for VAT.
The charity intends to purchase £200,000 of blankets and bedding that will be shipped overseas to help with poverty relief in one particular country.
My client has asked the UK supplier not to charge VAT as the goods will be exported out of the UK but the supplier has refused. Is this correct?
I wonder if, alternatively, my client can register for VAT and claim £40,000 input tax on these goods? I guess not because these items are being donated rather than sold.
Taxation readers’ thoughts would be very much appreciated.
Query 20,002 – Charity Clive.
