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Tax consequences of transferring land into company.
My client is the grandson of an elderly farmer who is a sole trader. Sadly, his grandfather (G) is in a state of failing health.
Without taking tax advice, the farmer’s solicitor and building development promoter formed a limited company (Newco) for the purpose of the development deal with an anticipated life span of the proposed deal. The Newco set up has my client as a director and 40% shareholder.
The promoter’s reasoning for forming the limited company was that the development does not become caught up in any potential probate administration and the grandson can ‘sign all future documents so that development matters can progress’. The potential development land has been transferred into Newco. We were approached by the grandson and his parents as they are worried that the grandson will have unseen tax problems from the ‘gift’ of the land into the company. They are also worried for G as no SDLT was paid on the transfer of the land into Newco and he has been told that there are no tax consequences of putting the land into Newco.
A further complication arises in that the land has been farmed under an Agricultural Holding Act 1986 (AHA 1986) tenancy by G all his life (and his father before him). The land was bought by G in the last year from the landlord at a much reduced cost because of the AHA 1986 tenancy and there was no punishing overage agreement.
The land has very positive chances of development and has apparently not been valued going into the company. There are tax worries by the grandson on his reading of tax articles online. He has been promised the farm in return for working for a reduced wage, and is very concerned that his much cherished (but stubborn) grandfather is not receiving correct tax advice on the proposed development.
What are the tax concerns for my client and his grandfather?
Query 20,075 – Furrowed Farmer.
CGT position on gain or loss following currency exchange.
US shares are purchased and sold in USD. The CGT position is calculated by reference to the sterling equivalent of the USD at the date of purchase and the date of sale. The USD are retained in a US brokerage account. Some time later, the USD are converted to sterling.
Is this disposal of the USD relevant for CGT purposes, producing either a gain or loss? Or is this transaction covered by the general exemption for foreign currency bank accounts introduced in 2012?
Query 20,076 – Pond Hopper.
Artificial tax planning arrangement.
I am preparing a client’s tax return. The client has just told me that she entered into a tax planning arrangement which was promoted by another firm. I had no involvement with the scheme and the first I knew of it was when she sent me a schedule provided by the scheme promoter showing the entries which should be made on the return.
I have not seen any of the underlying documents but from the schedule which has been provided, it seems the scheme was highly complex and completely artificial. However, the client has not been provided with a disclosure of tax avoidance schemes (DOTAS) reference number. I queried that with her and she says the promoter has said that counsel has advised that the scheme does not need to be notified under DOTAS. I have not seen that advice.
Everything I have seen suggests that this scheme should have been notified although of course I don’t have access to all of the scheme details or counsel’s advice. Do I have any professional or legal operation to disclose the scheme to HMRC even though I had no hand in it? I worry that if HMRC investigates and finds that the scheme should have been notified then there will be some come back on me, either from HMRC or the client. Can I simply accept that this is not a notifiable arrangement and thus no scheme reference number?
Query 20,077 – Worrier.
Was VAT registration incorrect?
One of my clients trades as an advertising consultant with annual sales of £60,000. On 30 June 2022, he purchased a block of fees from another consultant worth £30,000. I told my client that as his total fee income was effectively £90,000 for the year ended 30 June 2022, he had to register for VAT on 1 July 2022 – because he treats the seller’s turnover as his own, meaning total sales exceeded the £85,000 registration threshold.
However, the seller was not VAT registered and I understand from a colleague that we did not therefore need to include the £30,000 of sales in the calculations. Is this correct? If so, presumably we should have just carried out the usual rolling 12-month calculations based on his own sales?
I realise that it is too late to correct the situation for my client but I would be interested to know the correct rules if it happens again.
Query 20,078 – The Advertiser.
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