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Anomaly?; Returning to UK; An unnecessary complication; Machine leasing
Anomaly?
Annual exemption on non-resident trust gains.
I deal with the compliance for a number of non-resident trusts. FA 2019 has extended the capital gains tax charge on non-residents (including trusts) to all interests in UK land. When capital gains tax applies to non-residents, they are entitled to claim the annual exemption (TCGA 1992, s 1K). This can also be claimed by trustees – half value in most cases, full value for disabled trusts.
However, what is confusing me is the special rule for the annual exemption for trusts. I’ve always understood that if more than one trust is created by the same settlor, the annual exemption is divided between them (TCGA 1992, Sch 1c para 6) and I expected that this rule would also apply when the trusts are non-resident. But as far as I can see this is not the case. The rules for splitting the annual exemption only apply if there is a ‘qualifying UK settlement comprised in a group’ and the definition of a qualifying UK settlement in Sch 1c para 7 makes it clear that the definition only applies to trusts when the trustees are UK resident for all of part of the year.
The anomaly seems odd or have I missed something which has the effect of splitting the exemption?
Query 19,499 – Trust Adviser.
Returning to UK
Australian superannuation and overseas investment fund.
My client was born in the Republic of Ireland and has always worked and paid taxes overseas. He emigrated to Australia from the Netherlands in 1989, but is working currently in Laos. He holds joint Australian and Irish nationality.
He has a superannuation scheme in Australia with a value of about £600,000 which was accumulated over 17 years while working in Australia.
The client has also paid £150,000 into an investment fund based in Guernsey while working in Laos for the past 11 years. He has owned a house in the UK for three years with his English wife who lives here. There is no other income.
He has visited the UK for fewer than 90 days each year over the past three years and will be 60 in September at which point he can access the Australian superannuation tax free as long as he finishes his current job. My client proposes to live and work in the UK from 6 April 2021 for a further five years before retirement.
How can he best protect the existing Australian superannuation (which he can then access) and his overseas investment fund earnings from being taxed in the UK?
I look forward to readers’ replies.
Query 19,500 – Globetrotter.
An unnecessary complication
Tax evasion discovered during divorce settlement.
We act on behalf of Mrs X and in her divorce proceedings. Her solicitor has asked us to assist with matters arising from the proposed financial settlement.
Mr X has reluctantly provided the information necessary to establish a fair division of assets but, in the course of doing so, we have become aware that he has not paid the correct amount of tax and his accounts appear to be a crude attempt to evade liabilities. However, HMRC has seemingly not enquired into any aspect of his affairs.
First, is there any duty on us to alert Mr X’s tax adviser as to what we have discovered? And should we recommend that his client makes an immediate full disclosure, despite this being against our client’s best interest because Mr X will be able to take into account the arrears of tax, penalties and interest and thereby reduce the amount our client will receive in the settlement?
Second, are we under a duty to make a notification under the money laundering regulations regarding the tax evasion? Mrs X is an officer of both the companies that have arrears of tax and this will continue until immediately before the settlement whereupon Mr X will take over full control. This is necessary to ensure that she enjoys entrepreneurs’ relief on the gain on disposal of her shareholdings in each of the two companies. She tells me she has no knowledge of any evasion but what if Mrs X chooses to ignore what is going on? I have advised Mrs X to seek advice from a lawyer experienced in such matters, but she hasn’t as yet.
Third, in seeking expert legal advice on my own firm’s position, will I be able to charge the cost of obtaining any such legal advice to my client as a disbursement? Obviously, Mrs X will not be instructing me to seek such advice.
I look forward to hearing from readers on how best to proceed.
Query 19,501 – Straight & Narrow.
Machine leasing
VAT on US company renting out equipment in UK.
I act for a US-based company, which manufactures and leases out expensive machinery in the UK.
The company plans to import a major piece of equipment into the UK (worth £2m) and lease it for ten years to a UK company for an annual charge of £300,000. At the end of the ten-year period, it will be sold in the UK but almost certainly not to the hiring business. The expected sale at the end of the ten-year period will be £250,000.
Should the US company register for VAT in the UK to claim input tax on the import of the machine (supported by a C79) or should it claim this VAT instead by making a Thirteenth Directive claim and then the customer would deal with the VAT by making the reverse charge on their own returns? And what happens when the machine is sold in ten years’ time if the latter situation applies?
Readers’ thoughts would be very much appreciated.
Query 19,502 – Machine Man.
