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Estate planning
Are dispositions for family maintenance transfers of value?
At a recent course I was interested to hear the speaker talk about the use of IHTA 1984, s 11 as part of estate planning. Section 11 says that dispositions for family maintenance are not transfers of value.
Given that the cost in the UK of bringing up a child to age 18 is estimated at anything up to £200,000 could somebody with two young children write a will directing that £400,000 is put into a bank account for the benefit of his children so that if he died suddenly that sum would immediately escape inheritance tax?
What are the benefits and pitfalls here and what experience do readers have of HMRC’s attitude to using s 11 in this way?
Query 19,967 – Curious.
Research and development
How to deal with a wrongly claimed R&D payment.
I have recently received a copy of a revised tax calculation for one of my clients showing a considerable repayment which I knew nothing about until he told me that he had been approached by an R&D adviser who had put in a claim on his behalf.
He had not seen any paperwork and had no idea what was in the claim. I know the client’s business well and am as certain as I can be that he is not carrying on anything which is even remotely connected to R&D. It also seems that the client has, without really knowing what he has done, mandated that the repayment, and any future repayments, are to go to the R&D adviser.
What do readers recommend that I do in these circumstances? Is the only option for me to advise the client to withdraw the claim – in which case he will be significantly out of pocket because he won’t get the fee for the R&D claim back from the adviser? If he does not, am I obliged to cease acting?
Query 19,968– Frustrated.
Business contract purchase
Tax on business contract purchase arrangements.
Debbie Bray and Jonathan Coletta’s excellent article ‘Porsche plans’, Taxation, 9 June 2022, caused me to reflect on the tax treatment of business contract purchase (BCP) arrangements.
Depending on the specifics of the BCP arrangement in question, they can either be operating or finance leases. To identify how to categorise the arrangement one would need to weigh the various considerations in FRS 102, 20.4-8 (Classification of leases). In practice, I suspect most advisers assume it’s a finance lease if the client is asked to pay VAT in full, upfront, and an operating lease if they’re charged monthly.
Let’s say the client will be asked to pay £40,000 plus interest over a four-year period. At the end of the term, there is an option to purchase the car for a £20,000 balloon payment. In this unrealistic example, let’s assume the car is valued at £60,000 on day 1.
My understanding was always that the £40,000 (the value of the finance lease) depreciates over four years, not £60,000 (the value of the car). The reason is that, when the four years elapse, relief in full has been claimed for what the client has actually paid. If they hand it back at this point, no adjustments are required. If they pay the balloon payment, that is treated as the purchase of a £20,000 car and capital allowances claimed from that point onwards.
The article made me worry that perhaps I’ve misunderstood the rules. Should I be depreciating the value of the car, not the lease? If so, then what happens if my client hands the car back? Do I need to claw back £20,000 of depreciation as though there was a balancing charge? And what happens if my client pays the balloon payment? Do I recognise that as an asset of nil value despite £20,000 having been paid for it?
Any guidance would be gratefully received.
Query 19,969 – Driven to Distraction.
VAT on advertising board
Is an advertising board on scaffolding a land supply?
One of my clients owns the freehold of a property in a prominent location in London that consists of a ground floor shop and office accommodation on three upper floors. My client is VAT registered because of other activities but has never opted to tax this property.
My client is having some major renovation work carried out on the property, which will require the erection of scaffolding on the exterior of the building for nine months.
My client has agreed a deal with two local companies to help pay for the cost of the works. The first company will provide my client with a big plastic sheet that will be pinned to the scaffolding, advertising its name and services. For the second company, it will be an advertising board rather than a sheet, which will be nailed to the scaffolding.
My client is convinced that the revenue of £2,000 per month from each supplier will be exempt from VAT because he has never opted to tax this building. His email referred to ‘renting out the side elevation to our building.’ But I am not so sure.
What do readers think?
Query 19,970 – Lily the Pink.
