Will transferring title to property trigger tax?
I have acted for a married couple for about five years and a stamp duty land tax problem has just arisen.
The facts, so far as I have been able to determine them, are that a residential property was purchased in 2007. The solicitors’ correspondence and completion statement were addressed to our clients and the funds were provided from our clients’ joint bank account. The legal title, however, was registered to a limited company owned by our clients. The company has been dormant since incorporation and has never had a bank account.
Ever since the purchase, the rental income has been declared on our clients’ personal tax returns. One interpretation of this could be that, while the company has legal title to the property, my clients have the beneficial interest. Do readers agree?
The problem has arisen because our clients are in the process of having their wills updated and wanted to have title to the property transferred into their own names, to simplify matters. A solicitor has been approached who has advised that SDLT will be due on the market value of the property because it would be a transaction between connected parties. I understand that the default position with SDLT is that it is normally charged on the actual consideration notwithstanding that this might be less than market value (or even a gift). I note FA 2003, s 53 states that market value will apply when the transaction is between connected parties and where the company is the purchaser. I cannot find anything confirming that this is the case where the company is the vendor. Needless to say, before taking any action, my clients need to establish whether SDLT will or will not apply to the transaction. The property’s current value is in excess of £300,000, so the SDLT could be quite substantial. Views of readers would be most welcome and any advice gratefully received.
Query 20,495 – Hidden Hands.
Can beneficiary living abroad claim repayment of income tax?
I am acting as executor for a UK resident, UK national, whose daughter lives in Australia with dual nationality. She is absolutely entitled to half of the estate residue. During the administration period there will be a substantial amount of interest income on which the estate will pay income tax.
Can the daughter claim back the income tax that the estate will have paid? Is there any way of avoiding paying and reclaiming the income tax? I do not believe that she has any other UK source income.
Query 20,496 – Uncle Jim.
What are the consequences of a write down?
My client’s close company made a loan of £500,000 to a company owned by his daughter and son-in-law to finance a business in Slovakia, secured against the value of the land that the Slovakian company bought with the money.
The business has not prospered, and although some of the money will be recoverable based on the security, my client considers that the impairment in the loan should be recognised in the accounts for the year to March 2025, in which his company will have a substantial trading profit.
What are the consequences of the write-down? I presume there is no relief against the trading profit, but might there be a tax charge on what is effectively an indirect gift to a connected person?
Query 20,497 – Worried.
Are penalties due if HMRC decides there is no TOGC?
I read with interest Neil Warren’s recent article ‘Moving the goalposts ... again’ (Taxation, 30 January 2025) and, like him, was also shocked to read that the principle of commercial restitution no longer applies to VAT errors where no tax has been lost by HMRC, ie interest is now charged on all disclosed errors even if output tax not charged by a supplier would have been claimed as input tax by the buyer.
We act for many clients who buy and sell businesses and – when we act for buyers – we always accept the clause in the sales contract that says we will pay any VAT charged by HMRC to the supplier if it deems the transfer of a going concern (TOGC) provisions do not apply. This is because my clients can claim input tax, so it is not a problem. However, we also accept the other standard wording in the contract that the client will also pay interest and penalties assessed to the seller by HMRC. I have two questions:
- Will all deals now be subject to penalties against the seller as well as interest if HMRC issues an assessment to say that a sale should have been standard rated and was not a TOGC?
- As the seller is responsible for charging the correct VAT, should we insist on the removal of the interest and penalty clause from any sales contract?
- It seems very harsh that my clients buying a business should pay for VAT mistakes made by the seller.
Query 20,498 – Confused.
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