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Taxation of dividend in specie.
BHP (the holding company of an Australian group) owned 100% of the shares of BHP Petroleum. Under an arrangement in June 2022, BHP exchanged all of its BHP Petroleum shares for an issue of shares by Woodside Energy (another Australian company), which after issue, amounted to 48% of the total issued share capital of Woodside Energy. BHP then immediately distributed those new shares to its own shareholders.
The distribution is charged against revenue reserves in the accounts of BHP and is regarded as a taxable dividend for Australian residents. One UK asset manager shows this as a taxable dividend, another does not. ITTOIA 2005, s 402 which taxes dividends from non-UK resident companies, excludes dividends of a capital nature. HMRC manual SAIM5210 says that if the ‘corpus of the asset’ is left intact after the distribution, it is income, but if not, it is a capital receipt.
Do readers consider that for a UK resident individual, this dividend in specie should be subject to tax or treated as a demerger under TCGA 1992, s 136?
Query 20,231 – Pax.
Will pension relief be available to Spanish resident?
My client is a director of a company in the UK (UK co) from which he has been receiving £60,000 a year, taxed via PAYE.
UK co has a Spanish subsidiary of which my client is also a director and works for both companies. Since October 2021 he has been splitting his time between the UK and Spain, in addition to significant amounts of worldwide travel. His diary shows that in the last UK tax year he spent more time in Spain than in any other country.
In terms of personal life, my client has no dependents in the UK, although his elderly parents live here. He lives with his long-term Spanish partner.
In the 2022-23 tax year my client was present in the UK for 109 days, of which we calculated 59 were working days. He spent 206 days in Spain in the year. He has homes in both countries.
In preparing the 2023 tax return we have been liaising with the Spanish tax advisers and have agreed that, under the terms of clause 4 of the DTA, my client should be treated as resident in Spain for 2022-23 by reason of his personal ties being closest to Spain, despite being considered UK resident under the statutory residence test (SRT).
He is currently paying into a UK pension scheme and getting tax relief on those contributions via payroll. I understand that tax relief is only available on pension contributions up to five years after becoming non-resident. Assuming that his situation remains consistent with 2022-23, what I am not clear about is whether he would be able to continue to benefit from tax relief on the pension contributions by reason of being considered UK resident under the SRT, or if the residence override under the DTA will prohibit tax relief on pensions in future.
Query 20,232 – Captain Tax.
Treatment of losses carried forward.
ComCo was incorporated in the UK in January 2020 and acquired, as an investment, an office block which during 2020-21 it converted into residential dwellings, other than a small commercial unit on the ground floor.
On 1 January 2022, newly incorporated ResCo, which is a wholly owned subsidiary of ComCo, acquired at market value the freehold interest in the entire building other than the commercial unit which remained with ComCo.
We are confident that the internal sale of the property is exempt from corporation tax and the query does not relate to this aspect.
The residential and commercial units are let by ResCo and ComCo, respectively, to third parties. Both companies have a 31 December accounting period and in 2022 generated rental income. The income of ComCo is very minimal.
While converting the property, ComCo incurred very substantial borrowing costs which resulted in non-trading loan relationship deficits carried forward as at 31 December 2021.
It is understood that, in principle, ComCo should be able to surrender some of its carried forward losses to ResCo. However, it is considered that the period in which ComCo incurred interest costs and the period in which ResCo generates income, do not overlap and therefore, losses carried forward by ComCo cannot be surrendered to ResCo.
Do readers agree with this analysis? Importantly, would readers consider the position to be different had ResCo been incorporated on 1 January 2020 and been dormant through to 31 December 2022, ie would the fact that both group members had overlapping accounting periods in which the parent incurred losses, widen the scope for offsetting group losses?
Query 20,233 – Groupy.
Is Irish VAT applicable to fees relating to sale of cattle?
Our client is based in Northern Ireland and will be buying and selling cattle in the island of Ireland and exporting outside the EU.
For cattle that are bought and exported within and from the Republic of Ireland is there any Irish VAT to be applied on auctioneer fees, vet fees, haulage fees when the cattle are being exported to Africa and/or GB when our client is based in Northern Ireland?
In addition, can our client claim VAT on Ireland diesel purchased within Southern Ireland.
Query 20,234 – Emerald.
Queries and replies
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