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Tax consequences of selling moored boat.
My client has owned a houseboat for many years. He owns a separate home. For many years he used the houseboat at weekends and did not have it permanently moored or permanently affixed to mains services.
As he has got older, however, he wants a more permanent arrangement and so his houseboat is now moored and is permanently connected to mains services. He still stays in it during some weekends but also allows friends and family to stay on the boat when he is not there. He doesn’t charge rent but he asks his guests to pay a contribution towards expenses.
He has asked me what will happen when he sells it. As I understand it, a houseboat is exempt from capital gains tax unless it is permanently moored (it can be regarded as a residence when it is permanently moored). Would I have to time apportion any gain arising or is there a deemed disposal and acquisition at the time that the boat was permanently moored? Does the contribution towards expenses make any difference to the analysis? Query 20,351 – Mariner Man.
Should expenditure be divided in separate loan accounts?
I have recently been appointed to represent the wife in a divorce case. She and her husband were 50-50 shareholders in a successful family company. For the many years they operated, they funded most of their private expenditure through the company. The company’s accountant/tax adviser did a good job of identifying private expenditure and charging it to a loan account which was cleared each year via dividends. However, he treated the loan account as a joint account and didn’t differentiate between private expenditure attributable to the husband and the wife. Everything was lumped together. As part of the divorce, the wife has now requested me to re-analyse everything into two loan accounts – one for the husband and the other for herself. The work I have done to date shows that the husband’s expenditure was much higher than the wife’s and that if you treat the two loan accounts as separate, the husband’s loan account is substantially overdrawn because the declared dividends were not enough to clear ‘his’ balance.
I’ve discussed this (with permission) with the company’s adviser and he is adamant that HMRC has no problems treating this sort of joint loan account as a single account and that there is no need to separate out the husband and wife’s elements as two separate accounts.
The wife wants me to press hard on this point because she feels that she has not been treated fairly. Before I take any further steps, I would be grateful for any advice which readers can give. Is it necessary to go back and reconstitute the loan accounts as two separate accounts, with all the consequences that flow, or can matters simply be adjusted in the year of divorce as part of the settlement.
Query 20,352 – Pluto.
Does dividend income affect input tax recovery?
A colleague and myself are having a healthy disagreement about input tax incurred by a holding company client, which has income from dividends and management services. Both sources of income come from its trading subsidiaries. The holding company is VAT registered, as are all three trading subsidiaries; none of the four companies have any exempt supplies.
My client charges VAT on the management services but dividends are outside the scope of VAT. There are no issues about the validity of the management fees because the holding company employs five staff who carry out a range of work for the trading companies and there are other shared costs.
My question is simple: can my client claim all input tax on overhead items it incurs, eg professional fees, telephone bills, premises costs, or should it apportion the claim based on the ratio of dividend versus management fee income? In other words, if dividends are £100,000 in a year and management fees are £400,000 plus VAT, can my client claim 80% or 100% input tax?
Query 20,353 – Dividend Daisy.
Is VAT claimable on compensation payment?
One of my clients is a sole trader builder who did a £50,000 building job on a private house back in 2021, working for the homeowners directly.
The job was only partly finished and there have been many problems since, which have involved both legal and surveyor costs to identify the problem. My client wants to bring the matter to a conclusion as soon as possible and admits he was at fault for not doing the job properly and has agreed to pay £36,000 to the homeowners and they will pay their chosen builder £30,000 plus VAT to correct the defects.
My question is whether my client can claim £6,000 of input tax on the payment, even though the builder will be acting for the houseowner rather than my client? The homeowners have refused to have any further dealings with my client and have insisted on the work being carried out by their chosen builder.
It seems reasonable to me to claim input tax because the costs relate to a taxable supply made by my client in 2021. Presumably my client just needs a copy of the builder’s invoice(s) to support the claim?
Query 20,354 – Bodgit Man.
Queries and replies
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