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Shifting sands
Entrepreneurs’ relief on remitted disposal proceeds.
Our client, Mr X is a UK resident but non-domiciled individual. In 2015-16, he realised a chargeable gain on a foreign disposal which qualified for entrepreneurs’ relief and would have used the full £10m lifetime limit.
The proceeds were not remitted to the UK, but a protective entrepreneurs’ relief claim was submitted to HMRC so that when proceeds were remitted to the UK the gain would be taxable at the capital gains tax rate prevailing when the gain was remitted. This protective claim was agreed with HMRC.
Subsequently, in 2017-18, Mr X remitted £1m of the proceeds and the tax return included a chargeable gain of £1m at 10% (the proceeds being virtually the same as the gain given the nominal value of original investment).
On reading the draft Finance Bill 2020, which reduces the lifetime limit from £10m to £1m on qualifying disposals made on or after 11 March 2020, subject to anti-forestalling conditions, there appears to be no mention about remittances of previously qualifying disposals.
Section D of the CIOT guidance, Guide for members on technical points raised with HMRC (13 February 2012) states that it is HMRC’s settled view that the entrepreneurs’ relief limit applying in respect of remittance basis gains is that which is in force when the qualifying disposal is made and not when any proceeds are remitted. However, foreign chargeable gains of a remittance basis user are treated as accruing when remitted (TCGA 1992, Sch 1, para 1(2)).
Our question is whether the remaining unremitted capital gain of £9m will continue to attract the 10% entrepreneurs’ rate if the remaining proceeds were now remitted to the UK?
I look forward to replies from readers.
Query 19,563 – Homer.
Covid situation
VAT issues on coronavirus rent holiday.
My client owns some commercial and residential properties. The commercial properties consist of shops and, currently, these are closed due to the coronavirus situation.
The client is sympathetic to the situation of these tenants and is giving them a rent holiday. However, some of the properties have residential flats above the shops and those properties will not have a rent holiday.
Should my client still charge VAT on the residential portion of the rent? VAT has been charged previously on the commercial and residential rent where the property has been opted.
What are readers’ thoughts here?
Query 19,564 – Landlord.
Furnished failure
Claiming capital allowances on furnished holiday lettings.
My client has owned a property that has been used as a furnished holiday let for a few years. For reasons of which I’m not yet entirely certain, it seems likely that the conditions for such a property were not met in 2019-20. Given the coronavirus crisis and ongoing lockdown, it seems highly probable that they will not be met in this year as well.
My question relates to the capital allowances that have been claimed on furniture, white goods and the like. I assume that these cannot be claimed against the rental income in 2019-20, but what do I do? Do I simply carry the written down value forward until the next year the property does qualify as a furnished holiday let or must I make a balancing adjustment? And how do I treat any new purchases made in 2019-20 and 2020-21? What happens when, let’s say in 2021-22, the property qualifies as a holiday let again. What value is brought into account for furnishings at the start of that year.
It seems likely that there will be at least two consecutive years in which the holiday letting conditions are not met.
Despite the present downturn, my client thinks there may be opportunities to buy other properties suitable as holiday lets. He thinks the downturn and consequent reduced letting income as people stay at home may depress the property market in the short term. In that event, if there is income from several holiday homes, can the rent and expenses be pooled together or must each property be considered separately?
Query 19,565 – Mr Heckles.
First accounts.
Dormant period before a company starts trading.
My client formed his limited company on 4 May 2018 and we prepared the first accounts covering the period 4 May 2018 to 31 October 2019 having given the necessary notification of this to Companies House.
In fact, the company did not start trading until the day after its formation, in other words, on 5 May 2018.
I understand the need to file more than one corporation tax return in respect of the period – in particular, CTA 2009, s 9 states that a company’s accounting begins on the date the company comes within the charge to corporation tax and s 10 determines the date on which an accounting period ends. However, what I am not so sure about is whether I need to file a return for the one-day period when the company was dormant, as well as having to file returns covering the periods from 5 May 2018 to 4 May 2019 and from 5 May 2019 to 31 October 2019.
Perhaps HMRC would not be too worried about a one-day discrepancy, but what would be the position if, say, there had been a month or two between incorporation and the start of trading? Would such a dormant period have any potential impact on the choice of the date to which the first accounts should be prepared and are there any possible tax implications that would follow?
I wonder whether Taxation readers have any thoughts on this small point.
Query 19,566 – Lacklustre.
