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Life interest trust
Availability of reliefs on a life interest trust.
Our client, after a divorce in 2005, received a 60% share of the family house and a similar share in 60 acres of land which is contracted out.
The remaining shares in the house and land were put into a life interest trust for their four adult children.
The family would now like to move the share of the house owned by the life interest trust into the name of the parent who owns the 60% share and move the land into the name of the life interest trust.
Unfortunately, the trust was created before the 2006 legislation was introduced so we do not believe holdover relief under TCGA 1992, s 260 will be available.
We are trying to determine whether exchange relief under TCGA 1992, s 248A would be available on the transactions. We are aware that the legislation talks about individuals but are unsure whether the holders of the life interest would qualify as individuals for this relief.
If readers know of any other ways to overcome the problem, their views would be welcome.
Query 19,839– Forester.
Wasting asset?
Capital gains tax on the sale of a beach hut.
My clients have recently sold their beach hut for a sum of £480,000. It has no toilet, shower or mains gas or electricity. Gas bottles are used for cooking and lighting. Clients can stay overnight only between April and October.
There is no permanent base on which the hut is located (ie bricks and mortar) but merely a wooden platform. They pay an annual licence fee to the local council which owns the land. The council has the right to force my clients to remove the hut if they contravene any of the conditions of the licence. A substantial sum was paid to the council for the transfer of the licence on the sale.
My clients own what can be described as a glorious garden shed which, incidentally, was built by them to replace a dilapidated hut which cost £185,000. The hut could be dismantled and removed if the occasion arose at any time. However, in this case it was sold to the new owner subject to the transfer of the licence from the council.
Will there be any capital gains tax implications and, if so, will the hut be classed as a wasting asset?
Readers’ comments would be welcome.
Query 19,840– Beachcomber.
Too good to be true?
Is interest tax deductible on a loan to own company?
I have a number of owner managed clients not within IR35 who have some savings on which they are earning negligible amounts of interest. I have been thinking about whether they can use their companies to achieve some tax efficiencies.
If they each lend money to their own companies then those companies could pay them interest on the loans. The interest would be tax deductible in the companies and, as far as I can see, would be within the personal savings allowance as far as their own tax is concerned. (There appears to be no rule restricting the use of the allowance where the interest is paid by a connected company.)
Of course, this would not be worth doing unless a reasonable amount of interest was paid, so is there anything to stop the companies paying interest at a high but not extortionate rate – say 10%?
A loan of £10,000 would allow an owner-manager to extract £1,000 tax free. I appreciate that there are non-tax issues here, such as what would happen in an insolvency, but is the basic tax analysis sound?
I look forward to readers’ comments.
Query 19,841– Interested.
Fire damage
VAT on land dilemma following fire.
One of my clients owned a commercial building, which he rented out to a local business that traded as a sauna and health spa. He opted to tax the building in 2007 and has always charged VAT on the rent to the tenant.
Following a fire last year, the building was totally ruined and the site is now just bare land. Having now received his insurance pay-out, my client is considering one of two options:
- sell the land to a local speculator who can then choose to use it as they wish; or
- obtain planning permission to build a ground floor shop, with two floors of flats above the shop – he intends to sell the flats on a 250-year lease, and rent out the shop to generate income.
Is the option to tax election from 2007 now irrelevant following the demise of the previous building? In other words, if he sold the land, would the sale be exempt from VAT? If he retains the land, should he make a new option to tax election with HMRC and what will this mean?
Readers’ thoughts would be appreciated.
Query 19,842– Flame.
