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Landowners
Gifting land to son to build a home.
My clients are a husband and wife farming partnership who are considering gifting an area of land to their son who is not involved in the farming business. On that land, immediately adjacent to a road, the son intends to build a house that he will occupy as his main residence. It has been indicated that a ‘reasonable’ planning application would be approved by the local planning department, but no application has yet been made.
I believe there will be no stamp duty land tax, since the transferor is an individual and there is no consideration. However, I think there will be a deemed (exempt) supply for VAT purposes.
For inheritance tax purposes, the gift would be a potentially exempt transfer (PET), for each parent, but agricultural property relief and business property relief would not be available in the event that the PET fails, in consequence of their death, by virtue of IHTA 1984, s 113A and s 124A.
Finally, for capital gains tax purposes, business asset holdover relief would appear to be available, either by falling directly within TCGA 1992, s 165(2)(a)(i) or by virtue of Sch 7, para 2. As long as the son then occupies the new house as his only or main residence within two years of the gift, the whole of any gain on a future sale would then seem to be exempt under TCGA 1992, s 222. It is this final combination of consequences that troubles me, as it appears just too good to be true.
The availability of business asset disposal relief (entrepreneurs’ relief as was) has been discounted because the transfer would seem to be of an asset used in the partnership business, rather than being a part of the business.
Could Taxation readers confirm my understanding of these tax implications?
Query 19,583 – Lambsbreath.
Coffee shop dilemma
Buying a business as one or two entities?
As a result of the pandemic, one of my wealthier clients has the chance to buy a very successful coffee shop at a heavily discounted price. However, it has come to light that there are two limited companies involved in the arrangement. The first company owns the freehold of the property and the second company (under the same share ownership as the first) does the trading and pays a commercial rent to the first company.
The seller has said that if we wish, the lease between the two companies can be surrendered before the sale, so that we just buy the property complete with the coffee shop business from the first company.
My client is paying £200,000 for the property, £20,000 for stock, fixtures and fittings and £10,000 for goodwill.
Do readers see any tax or commercial advantages in my clients copying the current owners – buying the property freehold in one legal entity and renting it to a separate connected entity which buys the other assets? Perhaps a husband and wife partnership owning the property and a company doing the trading?
I am happy with the VAT issues so only need advice on the other taxes.
Query 19,584 – Starmaker.
Emigration error
Working in France as an expat through UK company.
We act on behalf of a client who trades through a UK registered company. He and his wife own 50% of the shares each and they are both directors.
The husband does all the work and has always chosen to draw out most of the profits from the company by way of salary. He has only just told us that, in September 2019, he emigrated to France. He now has a contract as an IT specialist with a French company and all his work is carried out in France. At the present time, he has no intention of returning to the UK.
From October to May, we have continued to operate his payroll and have paid PAYE income tax and National Insurance contributions (NIC), making returns under the RTI scheme.
We now think that, with the control of the company moving to France, he should not be accounting for UK corporation tax but would, presumably, come under the French corporation tax system. Further, it seems we have paid PAYE tax and NIC that should not have been deducted in the first place.
Can Taxation readers advise on how we unravel the situation. Fortunately, the last accounts prepared were those for the year ended 31 March 2019 so if the company is either dual resident or now resident in France, no harm will have been done.
Query 19,585 – Mr Buckle.
Intensive wash
Post-registration input tax challenge.
My client sells washing machines and became VAT registered on 1 December 2019, submitting his first VAT return to HMRC for the period to 28 February 2020. The return was the subject of a verification by HMRC.
The reviewing officer disallowed £1,300 of input tax claimed by my client on an invoice dated 5 December 2019 because the machines were sold by him on 28 November 2019 – just before the date of registration.
Is this correct? The purchase invoice still relates to a taxable supply of goods, and the tax point is after the date of registration. We checked with the supplier, who confirmed that his invoice is correct because it was raised within 14 days of the machines being sold to my client, which was 25 November 2019.
I can understand the HMRC officer’s thinking that the key issue is the fact that my client will not pay output tax on these machines, but surely it is a case of ‘some you win and some you lose’?
What is the legal basis for the £1,300 disallowance?
Readers’ help would be appreciated.
Query 19,586 – Harry.
