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Tax implications of farmland passed on during mediation.
My client is a sole trader farmer. One of his adult sons has been actively assisting his father, on a full time basis, essentially from his teenage years right through to the present time, when he is middle aged. The son has worked for very low recompense, save for an assurance that one day, he would become the owner of the farming business.
In recent years, this father son relationship has soured, due to (among other things) the father’s reluctance to ‘sign over’ any of the farmlands to his son. In consequence, the son took a proprietary estoppel law case and eventually the case was resolved outside the High Court, on the day of the scheduled hearing, with the son being awarded a substantial portion of the farmland involved. The written agreement resolving the matter was made the subject of an order by the High Court.
First, am I right to think that the capital gains tax implications are:
- That this father has made a relating disposal for CGT purposes, but there are no relating proceeds for CGT purposes?
- While relevant CGT base costs and legal costs, etc can be deducted per the relating CGT computation pertaining to the father, this will result in ‘clogged’ CGT losses, with respect to the father?
Second, with respect to the property awarded by the High Court to the son in the instant case and, regarding prospective IHT returns for the father (who is quite elderly), even if the father dies within seven years of the date of the High Court order, because of the provisions of IHTA 1984, s 5 am I right to think that zero attributable value will apply in such IHT returns, simply because there is no relating beneficial ownership applying to the father consequent upon resolution of the relating legal proceedings? And, with respect to IHTA 1984, s 102 regarding GWROB, that section cannot apply because there was no gift?
What do readers think?
Query 20,451 – Matey.
Tax implication of undervalue of shares.
We have been asked to assist a third party with a company purchase of own shares in a two man company.
Everything falls within the regulations surrounding these transactions, but in our opinion, the price being paid for the shares is significantly lower than market value. While the POS rules don’t require that market value is paid, we believe that there could be adverse tax implications from the undervalue.
TCGA 1992, s 17 could be applied to replace proceeds with market value for CGT purposes and there is a potential chargeable lifetime transfer for IHT purposes, but is there any tax implication for the remaining shareholder? The value of their shares will have increased as a result of the sale at undervalue. Is this caught by employment related securities regulations?
Query 20,452 – Robin.
Is there a duty to disclose negligible income?
My client is a self-employed garden designer registered for self assessment. She is an avid collector of china and porcelain. Quite often she will buy an item on line which is a better example of something that she already has and will sell the older item on an online auction site. She doesn’t buy pieces to sell and I am sure that she is not carrying on a trade or a business. However, some of the items which she sells are quite pricey and it is likely that in one year she will sell enough items to exceed the €2,000 limit, which will trigger a report to HMRC from the platform operator.
Do readers recommend that my client should make some sort of white space disclosure on her tax returns to pre-empt a question from HMRC as to why she has not declared her income from online sales or should she wait until HMRC raises the issue? I’m sure that there is no tax liability on these sales – and even if there were it would only be insignificant – but I would be keen to avoid any hassle down the line for my client (or me) if HMRC did start asking questions.
Query 20,453 – Rodin.
Should VAT be charged on export of goods?
One of my clients has a VAT problem with an export of goods through a third party. Here is the situation:
- My client receives many orders for car parts from a prestige American manufacturer. In most cases, my client will act as the exporter, zero rate the invoice to the customer and retain proof of export.
- For some supplies, the American customer asks that my client ships the goods to another UK supplier; this UK supplier will incorporate the goods into their own shipment and send them in one container to America.
- The UK supplier says that there is no way of evidencing my client’s goods within the delivery, they are all included as part of the single shipment. This means that my client has no proof of export to support their zero rating.
My question is whether my client should charge 20% VAT to the American customer on these sales to avoid a potential problem with HMRC or is there another solution?
Query 20,454 – Mercie Mike.
Queries and replies
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