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Foreign profits
UK tax on US property proceeds and foreign income.
I have recently been approached by a high net worth husband and wife who have financial interests in several jurisdictions. They have US passports and are of Korean heritage but both of them live in the UK and I am certain that they are UK tax resident.
The husband is UK domiciled, but the wife is not and will soon fall foul of the seven out of nine-year rule.
They are limited partners in a NY LLC which holds residential real estate. They plan to incur very significant costs in improving the property (in the region of $1m) and will then rent it out before selling it. For US tax purposes they are treating the distributions from the LLC (both in respect of rent and the ultimate disposal proceeds) as a return of capital.
I am not advising on the US tax aspects but would like to know the UK position. Will HMRC be prepared to accept that this is all a capital repayment, or is there a risk that the element of the distribution which is attributable to rental of the underlying property will be treated as income? In other words, do the income and capital amounts lose their separate identity once they are distributed to the LLC members?
Secondly, the couple are in receipt of what they call ‘gifts’ from a friend with connections in the far east. These are substantial and recurring – amounting to some $100,000 a year. Clearly, I will not be able to take on the clients unless I am satisfied that there are no anti-money laundering implications but if I do get over that hurdle what should I be advising about UK tax? I understand that the gifts are reported to the US authorities on form 3520 and that none of the monies are brought into the UK. Are there any UK reporting issues?
Any advice from Taxation readers would be most welcome.
Query 19,723 – Transnational.
VAT on services
VAT status on UK services provided to foreign client.
My client offers event production services – where in return for a single fee he would provide an ‘event package’ (for occasions such as weddings or corporate events) which includes a venue (which he locates and hires), food (often the main element, which he sources from local caterers) and entertainment (such as a DJ, which he outsources).
The company is VAT registered and charges VAT on its fees at the standard rate to its UK customers, both businesses and consumers, for events taking place in the UK.
A booking was recently received from a business client based in Greece for an event to take place in London, and my client queried whether VAT should be charged on the invoice.
My initial thought was that the proposed supply would not fall under the only exception from the ‘general rule’ regarding business-to-business (B2B) supplies (namely, supplies of admission to an event) and thus deemed to be made where the customer is based.
However, paragraph 9.6 of the HMRC’s VAT Notice 741A states ‘the place of supply of restaurant and catering services is where the services are physically carried out’ and unlike in the preceding paragraphs, there is no clarification whether this statement refers to business-to-consumer or B2B supplies.
Please can readers shed some light on this.
Query 19,724 – Julia.
Company loan
Tax treatment of waiver of a loan to a company.
I have a corporate client which ran into difficulty some years ago and at that time it had a large outstanding liability to a director/participator who had advanced over £100,000 to the company to try and keep it afloat.
Subsequently the company, which was basically insolvent, was taken over by a third party. The third party has succeeded in turning the company fortunes around. By agreement with the previous creditor participator, this outstanding loan account is now going to be waived.
Would the waiver of this loan account give rise to any tax charge on the company that received the advance of the funds, and would any tax relief be available to the original creditor?
Readers’ thoughts would be appreciated.
Query 19,725 – Jack.
Exporting cars
Brexit tax challenge with car exports.
One of my clients is a car dealer in Liverpool who has a lucrative contract with a business in Cyprus.
He buys new cars with a large discount from the UK manufacturer and then sells them to the Cyprus customer, giving his customer a discount as well, but obviously less than the rate he gets from the manufacturer.
However, it seems that my client’s profit margin will now be eliminated post-Brexit by a tariff in Cyprus because the cars were manufactured in China – rules of origin? And there are extra charges being quoted by an external agent for dealing with export and import declarations in the UK and Cyprus.
My client has asked if it would make any difference if he formed a separate company in Northern Ireland to buy the cars and got one of these new ‘XI’ numbers that are unique to Northern Ireland? If this is a possible solution, would the cars have to go from GB to Northern Ireland and then to Cyprus?
What do readers think about this?
Query 19,726 – Keegan.
