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Treatment of shares in freehold on disposal
I have been speaking to a client who is purchasing a leasehold flat in a block of three.
The freehold is owned by a management company and the client is being offered shares in the company as part of the leasehold purchase. However, the third flat owner is not taking shares in the company.
It has been agreed that the shares in the company will be split 50:50 between two leaseholders so that neither has a controlling interest, but this is on the understanding that the shares making up the third of the company that relates to the third flat will be transferred to the third flat owner at par, if the third leaseholder so requires.
The flat will be the client’s only residence, so should qualify for main residence relief. However, I am having difficulty ascertaining how the shares in the freehold property company will be taxed if disposed of. It feels like the shares relating to the main residence should be covered by relief if sold with the flat, but there is nothing that seems to cover this.
Are readers able to throw any light on how these shares should be dealt with?
Query 20,419 – Appleyard.
Sale of personal collection of rare dolls
We are currently considering taking on a new client who has amassed a large collection of vintage and rare dolls over the years. The client has decided to dispose of a portion of this collection, valued at about £200,000, using eBay.
Each item is priced well under £6,000 (below the chattel limit for capital gains tax), and the client has now reached more than £100,000 in sales. Unfortunately, the client does not have documentation on the original cost of these items, although they are confident that they are making a loss overall.
eBay is now requesting either a VAT registration number or an exemption letter from HMRC. As this is definitely not a trade and is simply the sale of personal belongings, I am unsure whether VAT applies in this scenario and whether an exemption might be possible?
As a general question, when would HMRC consider an activity to be business rather than private? Is it all about making regular sales or does a business outcome only apply if deals produce regular profits?
Query 20,420 – Side Hustle.
HMRC’s attitude to failed R&D claim
A client has come to me – rather shamefaced – to tell me that their company used the service of a research and development (R&D) adviser who conjured up a claim more or less out of thin air which has no substance at all.
The client received no paperwork from the ‘adviser’ and has no idea how the claim was put together. All they know is that the company received a refund from HMRC after the adviser had taken their slice out of it. Now HMRC has started to enquire into the return.
There is no possible way in which this company could have incurred expenditure on anything remotely resembling R&D and the client accepts that the claim will have to be withdrawn and a payment will have to be made to HMRC – including the element taken as a fee.
The client is resigned to this but is concerned about whether they will have to pay a penalty on the basis that they didn’t take reasonable care. The client says that the adviser seemed very knowledgeable and credible and talked of their 100% success rate in getting claims accepted by HMRC so the client felt they had no reason not to trust what the R&D adviser was saying.
Other readers must have seen similar cases: what is HMRC’s attitude to penalties likely to be? I would be grateful for any insights.
Query 20,421– Wise After the Event.
Order of reliefs after donor’s unexpected death
I am dealing with an estate where the deceased made a chargeable lifetime transfer and potentially exempt transfer on the same day.
The potentially exempt transfer subsequently failed because of the earlier than expected death of the donor. I am trying to work out the liability and in particular how to use the nil rate band. Should it be apportioned between the two transfers or given to one of the transfers in preference to the other?
This got me thinking about how to advise clients in future. If they are intending to make transfers, one of which is a potentially exempt transfer and one a chargeable lifetime transfer. Is there any advantage from an inheritance tax perspective to having the two transfers occur on the same day or is it better than they should happen on different days.
Readers’ thoughts would be gratefully received.
Query 20,422 – Estate planner.
Queries and replies
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