.png)
.png)
Business inheritance
Transferring commercial property interests to children.
I act for a husband and wife partnership that owns a freehold commercial site on which are located small industrial units occupied by tenants.
The couple are both in their late 70s and suffering with poor health. They have two children in their 40s and 50s who will inherit the whole business and naturally they are concerned about the liability to future inheritance tax.
In my opinion there are two proposals to consider: either include both children initially as equal partners or transfer the business to a limited company and then issue shares to the children.
My problem is to decide which proposal will give rise to the least amount of capital gains tax bearing in mind that the business is currently worth about £2m. Transferring assets will have to be by way of gift because the children are not in a position to pay any consideration.
I would be obliged if Taxation readers would point me in the right direction.
Query 19,663 – Crossroads.
Certificate of tax deduction
Form R185 foreign income conundrum.
I am completing the personal tax return of an additional rate UK taxpayer and have been presented with a form R185 showing his share of income arising from a UK trust in which my client has an interest in possession.
The R185 includes entries to be made in the foreign pages of my client’s return. To keep the figures simple the R185 showed £10,000 of dividend income from US companies upon which foreign tax had been deducted at source at the treaty rate of 15%. In addition, the R185 shows an amount for UK tax suffered of £750 – being 7.5% of the £10,000 foreign income taxed in the trust’s own tax return.
Taking these figures at face value, and following the instructions on the form R185, I would include £10,000 gross income on the foreign pages with UK tax deducted of £750 and foreign tax of £1,500. I then claim foreign tax credit relief and this produces a calculation that not only gives credit for the UK tax deducted of £750, but also the full £1,500 foreign tax.
Is this right? On closer examination of the R185 figures I established that the £750 of UK tax payable by the trust on this income has in fact been franked by claiming the equivalent amount of foreign tax credit within the trust. So, in effect, the trust has not had to pay any UK tax on this income because the liability has been settled by applying part of the £1,500 foreign tax credit.
In these circumstances should I not have to limit the foreign tax by £750 because this amount has already been used by the trust to frank its UK tax liability on that income? In that case, I would claim the UK tax of £750 but only £750 of the foreign tax credit because the other £750 has already been used by the trustees, and this would appear to give the logically correct answer.
Readers’ assistance with this matter would be gratefully received.
Query 19,664 – Perplexed.
French property and a SARL
Tax on distributions and sale of SARL or French property.
My clients have bought a French rental property through a société à responsabilité limitée (SARL) with a cash loan to the SARL, which, I understand, is regarded as an opaque entity in the UK.
I can find little information about the UK tax situation on distributions and either the sale of the SARL or the property.
I have the following questions.
- Can distributions be treated as loan repayments until fully repaid, then they would be dividends, as with a UK company?
- Is the sale of the SARL treated as a share sale, subject to capital gains tax?
- If the property is sold and the proceeds distributed, is this an income distribution or can it be treated as a capital distribution on a winding up?
I look forward to feedback from Taxation readers.
Query 19,665 – Searcher.
VAT on farmland sale
Farming land and VAT problems.
I am concerned that two farmer clients have some unexpected VAT problems. Basically, two brothers used to own farmland jointly as a partnership. They were VAT registered as a partnership and used the land for farming activities.
It seems that the partnership opted to tax the land with HMRC about five years ago because they were thinking of obtaining planning permission to build houses, so that it could be sold at a higher value to a property developer. The partnership wanted to claim input tax on the promoter fees, hence the option to tax being made. However, this plan never materialised.
Two years ago, the land was transferred at a nil value so that each brother now owns 50% of the land. The brothers have continued to farm with separate VAT registrations as sole traders, so the land transfer was treated as the transfer of a going concern (TOGC) of a farming business.
My query is that one of the farmers now has the chance to sell some of his land to a neighbouring farmer. Does he charge VAT on the sale, in other words, is the partnership’s option to tax carried over to the new owners – a little like rollover relief for capital gains tax purposes? Or should he treat the sale as VAT exempt? Neither of the sole traders has made a separate option to tax election with HMRC.
Taxation readers’ thoughts and advice would be very welcome.
Query 19,666 – Giles.
