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SDLT surprise
A married couple have been living in job-related accommodation (a school boarding house) for the past 25 years. They own two properties which are rented out. An election was made to treat one of these as their main residence for capital gains tax only or main residence relief purposes. They paid the 3% stamp duty surcharge on both properties, but have never lived in either.
They will soon cease to live in school accommodation and have made an offer of £475,000 for a third (and larger) property into which they plan to move.
I have advised them that they will have to pay the 3% stamp duty land tax surcharge (£14,250 because the £475,000 property does not replace a main residence that was sold in the previous three years. Also, they will only avoid the 3% surcharge if they sell both let properties before they complete the purchase of the £475,000 property.
My clients feel that this is unfair and comments from Taxation readers would be very much appreciated.
Query 19,615 – Trinian.
Man with a van
In 2003, my client bought a ‘van and a man’ delivery business for £40,000; £20,000 for goodwill and £20,000 for business assets. He operated as a sole trader for a year before incorporating in October 2004. He formed the company himself and paid £1 for one ordinary £1 share. I was then appointed to act for the company – not having acted for him previously. The client did not tell me about the original purchase so those assets were not included in the company accounts. During his sole trading, not only was he paying drivers to operate his vans, he was also paying other drivers to transport goods using their own vans. In the intervening years he has continued to operate in the same way, buying and selling his vans for use in the business and subcontracting work to drivers with their own vehicles.
He has now told me that he has sold his share in the company for £60,000. There is simply a written agreement that he has sold the share to Mr A Purchaser. No stock transfer form was completed and no stamp duty was paid. There is an agreement that he can drive a van for the business if he needs to earn some money. Needless to say, no solicitors were involved.
My immediate thought is that there is business asset disposal relief and any capital gains tax will be payable at 10%, as long as he does not drive a van. If he does do some driving, would no such relief be due? The client’s argument is that he previously operated the delivery business and never drove; so driving a van now would be a new trade.
Is it too late to do anything about the goodwill and assets originally purchased? I would also appreciate thoughts on any other aspects.
Query 19,616 – Trapped.
Training and tax
We have taken on a new client and there is either a major VAT problem or corporation tax issue, possibly both. Our client has two activities. First, training courses for people buying property in Spain. The business trades as a sole trader with its own bank account, invoicing and purchasing etc. It is VAT registered and annual sales are about £100,000.
The second business is training courses for chefs, focusing on Spanish food. This business has traded as a limited company since 2015 and is not VAT registered with annual turnover around £30,000. The sole trader from the training course business is the only director and shareholder.
Since the sole trader business started in 2018, the previous accountants have consolidated all income and expenditure into the limited company accounts, treating it as a division of the company, which pays corporation tax on the profits. This seems wrong. What do readers think are the VAT and tax problems and how should they be corrected?
Query 19,617 – Manuel.
Offshore obfuscation
I recently received a letter from HMRC for a client which says: ‘We have written to your client as we have information that shows they may have received overseas income or gains that they may have to pay UK tax on. We have received this information through the UK’s tax information exchange agreements with other countries. This letter gives your client the opportunity to review their tax affairs and to tell us about anything that they may need to put right.’
Income from the client’s US portfolio is reported on the self-assessment return and the client says he has declared everything. I spoke to an HMRC officer who says the department does not have the resources to check the information received against the returns, so these letters are sent as a reminder to include the information in the tax return. I did express my surprise at this approach, but that does not change the system.
The letter includes a certificate to be signed and returned with a number of options to select, one of which is for the taxpayer to confirm their affairs are up to date as well as the years for which the income was reported and the boxes in which this was shown on the returns.
I am wondering about the legal basis of this ‘certificate’ and the potential implications of not sending it back. If my client has missed something and is later found to have not dealt with it properly, sending this certificate back could go some way to help with being seen to co-operate, but for clients who have nothing to hide, where do they stand?
I hope Taxation readers can advise.
Query 19,618 – Defoe.
