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Property transfer
Use of a trust in incorporating a rental business.
A new client has appointed us and they have incorporated their property portfolio using a beneficial interest company trust (BICT). These purport to allow the client to incorporate without having to refinance and retain the legal title and mortgage debt in the name of the individuals. This is by way of a declaration of trust and an agreement appointing the individuals as the company’s agent in ‘making the mortgage repayments in accordance with the debt delegated to it’.
Fundamentally, we have concerns with the proposed accounting and tax treatment of the incorporation. One of our main concerns is the treatment of the interest payments on the mortgages for the properties because the mortgage debt has not been legally novated and it is not possible (we understand) to assign the burden of the contract with the mortgage lenders to the company.
Having reviewed the loan relationship legislation, we cannot see how there is a loan relationship between the company and the mortgage providers that would allow a deduction of the interest payments as non-trading loan relationship debts. Further, we are concerned that the payment by the company of the liability remaining with the individuals may be subject to pay as you earn deductions as the settlement of a pecuniary liability or could it even be a capital cost of acquisition (as mentioned in HMRC’s Business Income Manual at BIM33710).
With regard to the liabilities, how should these be reflected because there is no obligation between the company and the mortgage lenders; is it in fact a director’s loan account?
I wonder whether any other Taxation readers have dealt with such situations and can offer advice here?
Query 19,359 – Confused.
Discounted property
Discount on property sold to employee by a housebuilder.
I was interested to read in The Times (24 April 2019, page 33) that the chief executive of Taylor Wimpey had decided not to proceed with the purchase from the company of a luxury flat. Apparently, he would have been able to buy the property at a discount of £436,000 from the original £2.4m asking price. The paper reports that the High Pay Centre had criticised the deal.
Perhaps more interestingly, the paper also reported that the firm offers all its staff a 5% discount on purchases of its own property. Further, a higher discount is available to employees once in their career. The paper says that this ‘is aimed at helping our younger employees get on the housing ladder’. Apparently executive directors are excluded from this scheme.
It seems that the chief executive has purchased several UK and foreign properties from the company at a 5% discount in recent years. It seems that a higher discount was offered on the cancelled deal because prices in London have been falling. The article reports that Taylor Wimpey says that the discounts were not treated as a benefit in kind and this has been agreed with HMRC.
I have several property developers as clients and I wonder whether I should suggest that they might use such a scheme to incentivise and benefit their employees. Can readers advise on whether there are any particular requirements for such a scheme? Does it need advance approval from HMRC? Other than the amounts involved, I did start to wonder whether it is, in principle, any different from retailers who offer their employees a discount on the goods that they sell to the public.
I look forward to replies from Taxation readers.
Query 19,360 – Woody.
Home improvements
Zero rating on work for disabled person.
I act for a client who owns a detached house that will be lived in by his disabled daughter and her partner. No rent will be charged by my client.
The VAT is substantial because the property is being extended and improved at a total cost for building work of between £150, 000 and £200,000.
There will be specific rooms built in the extension for his daughter to use, which I assume will be zero rated, but other parts of the house will have some work done on them so that she can gain access and use the other rooms.
Would all of this work also be zero rated? There will be some other improvements done to the property but all of them would probably enable disabled access.
The challenge is to explain the situation to potential builders to enable them to accurately assess how much of the work should be zero rated. Does it make any different that my client owns the property and will pay for all of the work?
Readers’ thoughts on these issues would be appreciated.
Query 19,361– Property Man.
Share swaps
Share sales, purchases and transfers between spouses.
My husband and wife clients have built up various shareholdings in their own names over the years and many of the holdings have accumulated gains. The clients would like to retain the holdings but mitigate the charge on an eventual sale by taking advantage of their annual exemptions. I have suggested that they could ‘bed and spouse’ shares to each other. The clients are happy with that plan, but for reasons best known to themselves, they would like to retain the shares in their own names. On the basis that the shares acquired by the spouse will have a higher base cost after the sale and repurchases, I wondered whether there is anything to stop them each then simply transferring the shares back to the other. Am I overlooking anything?
I look forward to replies.
Query 19,362 – Shareholder.
