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Capital treatment on previous purchase of own shares.
We act for a firm of financial advisers which operates as a limited company, ABC Ltd. Until about six years ago Harold (H) and Edgar (E) were equal shareholders.
H, being about ten years older than E, retired and the company purchased his shares, having obtained clearance from HMRC. H is virtually retired and no longer connected with the company, but maintains his professional qualifications and occasionally offers pro bono advice.
E has sadly just been diagnosed with an inoperable brain tumour, with a limited life expectancy. He therefore wants to dispose of the business as soon as possible.
H and E have remained good friends. H has asked whether his CGT treatment would be at risk if he were to now come out of retirement and buy E’s shares. This would provide E with funds to make the most of his remaining time. H would step in and run the business with a view to finding a suitable buyer without the time pressure. The conditions for the original purchase of own shares were fully complied with six years ago and the circumstances which now exist could not reasonably have been foreseen. H coming back into the business on a short term basis would be in the best interest of the business since it would cause less disruption and also be less stressful for E.
Could the capital treatment on the previous purchase of own shares now fail were H to step in?Query 20,143 – Cloudy.
Sale of artworks through foreign company.
While living overseas, X sold on the open market, part of his personal collection of works of art through a local company Y, of which he is the sole shareholder and director and which is registered in country Z. Y retained a commission per sale and returned the net proceeds of sale to X. Y’s balance sheet shows a small cumulative loss.
After some 11 years living overseas, X, who is a non-UK domiciliary, sold in January 2017, his remaining collection of art to Y for its market value with a corresponding credit to his director’s loan account before becoming UK resident shortly after 5 April 2017. The valuation was prepared by X, who is an expert in this category of highly specialised art. X considers that the value of the art is no higher now than it was in January 2017 and possibly lower.
It is intended that all the artwork in the company be now transferred to X as a drawdown of his loan account. X will then gift part of the collection to a UK museum, claim relief under TCGA 1992, s 258 and sell the remainder.
Did the sale to Y in January 2017 effectively create clean capital by rebasing the collection to its then market value and if so, could that be challenged, eg under GAAR?
- Do readers agree that the proposed transfers in specie, subsequent sale and remittance of proceeds would not constitute a taxable remittance under TCGA 1992, Sch 1 para 1 unless the proceeds exceeded the corresponding values at drawdown, or an exchange gain arose between January 2017 and now?
- Do readers agree that there would be no increased tax charge if it had to be conceded that Y has since January 2017 been managed and controlled in the UK?
Query 20,144 – Artist.
Relief on sale of property of couple living separately.
My clients Janet and John are in a business and personal relationship.
They have been together for many years but continue to live in their own houses, though spending a lot of time together. A couple of years ago they got married but they still continue to live in their own properties. Janet has decided to sell her existing house and move into a new one: John continues to live in his existing house.
How will principal private residence (PPR) work on Janet’s sale? Does the normal rule about married couples only having one PPR between them still apply when they don’t live together? This can’t be a unique situation.
Query 20,145 – Marriage Counsellor.
Cash accounting scheme and tax points.
One of my clients uses the cash accounting scheme (CAS) and trades as a computer consultant. I have discovered two potential problems when doing the year end accounts.
Firstly, he invoices his wife’s chiropodist company for services – not registered for VAT – but she has never paid him because her business is still evolving. The company will pay him eventually but not for at least 12 months. Does this cause a problem with the CAS anti-avoidance legislation?
Secondly, he raised an advance sales invoice in December 2022 for the sale of 100 computers to a customer for £120,000 plus VAT, which were not supplied until February 2023 when they arrived from China. The customer paid the invoice in January 2023. Should my client have paid the VAT on his December 2022 return rather than March 2023, ie based on the invoice rather than payment date? If so, does the error need to be notified to HMRC?
What are readers’ thoughts?
Query 20,146 – Taxpoint Tina.
Queries and replies
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