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Estate planning
Agricultural property relief on field transferred to son.
I have been asked to advise on estate planning for a farming partnership. Looking into this, I have read the HMRC guidance on agricultural relief that provides the following example (at tinyurl.com/yczws8ts).
‘John sells a field on his farm worth £2,000 to his son David on the next-door farm for £500. This means that he is giving David a gift of 75% of the value of the field.
‘David sells the field a year later and uses the £2,000 from the sale to buy another field for £2,000.
‘John dies three years after the sale.
‘When inheritance tax is calculated, the original market value (£2,000) of the field (the property that was transferred), rather than the current value of the field (£2,500) is included in John’s estate and is eligible for agricultural relief.
‘However, this is reduced by 75% because the original transfer was 75% gift. So the final amount eligible for agricultural relief is £500.’
Can this really be the case? If John had given the field to his son David for no consideration this would mean that no agricultural property relief would be obtained by John’s estate because his son David had replaced the field for different agricultural property.
Could readers confirm which analysis would be correct here?
Query 19,323– Farm Boy.
Joining forces
VAT recovery on shared import costs.
Adam’s company, Adam Ltd, runs a small household goods business. He sources the products in bulk overseas and sells to a handful of local retailers. His company is VAT registered because so are all its business customers and Adam Ltd can thus recover input VAT on relevant administrative expenses.
Import and freight costs of relatively small shipments significantly reduce Adam’s margins. Consequently, Ben – who is Adam’s friend and who imports good for his own company, Ben Ltd – suggested that Adam join him on the imports and share the costs pro-rata. Adam readily agreed.
Thus, when Ben is to import £50,000 worth of goods, Adam will add stock of £5,000 to the order and will pay Ben 5/55ths of any costs incurred.
Ben charges Adam £1,000 for the service and for storing the goods in his warehouse in the short term, on which VAT is charged at the standard rate.
On top of that, Ben Ltd charges Adam Ltd ‘VAT only’, being 5/55ths of the VAT charged at the point of entry to the UK.
The invoice from Ben Ltd therefore shows £1,000 net plus VAT of £200 plus a further £1,000 (being £5,000 x 20%).
Normally, to recover VAT charged at the port, a trader would need a C79 certificate. However, here, this would show Ben’s details rather than Adam’s. My question is therefore whether Ben is correctly passing on the VAT to Adam by way of a ‘VAT only’ charge? More importantly, can Adam rely on this invoice to recover any VAT suffered?
Readers’ comments and advice would be most welcome.
Query 19,324– B&A.
Property transfer
Tax aspects on the transfer of a main residence.
Could Taxation readers advise on the tax implications if parents were to transfer a property into their son’s name?
The house in question is the main residence of both the parents and their son, the parents having transferred a one-third share to him in 2016. There is no mortgage on the property.
The parents are now considering whether to transfer the other two-thirds into the son’s name.
Would there be an inheritance tax or capital gains tax liability either at the time of transfer or in the future? And, given the recent publicity on the subject and its effect on property prices, would there be a stamp duty land tax liability?
The parents will move out of the property when they have found somewhere suitable to live. However, this may not be for some time and, in the meantime, the property remains the main residence of them all.
If there are any other aspects that I am overlooking, I should be grateful for advice.
I look forward to replies.
Query 19,325– Roland.
Place of supply
Accountancy services treatment of deceased estate.
I have been asked to provide inheritance tax advice in connection with the estate of an English lady who emigrated from the UK to Australia some ten years ago. Unfortunately, she died there recently.
In her will she appointed her UK resident brother as executor. A firm of Sydney lawyers is applying for probate in Australia on behalf of the executor. The main assets of the estate are realty in the UK and in Australia.
HMRC’s VAT Place of Supply of Services Manual at VATPOSS13250 says that the services of accountants acting for executors or trustees in the general administration of winding up a foreign estate are seen as supplied to whoever is appointed executor or administrator.
However, if my contract is with the Sydney law firm, rather than directly with the executor, is the place of supply of my services in Australia or in the UK? And does the answer depend on whether the services relate to the UK assets or the Australian assets?
I hope Taxation readers can advise.
Query 19,326– Aussie Rules.
